Quantitative investing: Your passport to going global

By: Mike Adsetts, Chief Investment Officer at Momentum Investments

The sheer volume and variety of investment choices available can be overwhelming. Accompanying this, the sheer volume of data and the speed at which data is generated can be eye watering.

From an investment perspective, there are a few ways in which to approach this information overload. The one is to specialise quite narrowly in an investment universe and try to identify the gems in this space, creating an edge through deep insight in specific investments.

At the other end of the spectrum is an approach to utilise a variety of tools to assist with sifting through all the investment opportunities and using a more systematic approach to identify the investments that you want to make. This is the arena of quantitative investments: Tools and programs are used extensively to identify and select investments that meet a set of criteria that the investor regards as essential.

A good example of quantitative investing is factor or smart beta investing. This investment approach select securities based on a family of related attributes that can be clustered into certain styles. These styles can include ‘value’, where metrics focus on value attributes like discounts to net asset value or higher dividend yields; ‘momentum’, where metrics focus on trends in share price or earnings; and ‘quality’, where the focus is on metrics like return on equity or return on capital, for example. There is an extensive body of knowledge and research that indicates that these factor styles can outperform market indices over time.

The advantage of this factor or style-based approach is that it lends itself to automation, allowing for a huge number of investment opportunities to be evaluated and with a level of input and oversight from a portfolio manager to be incorporated into portfolios.

In the South African market, where the investment choices are relatively limited, quantitative investment approaches have taken a while to find favour with investors. However, in the global investment universe – where there are many thousands of potential investment choices to be made – various levels of quantitative approaches have long been a feature. This has run the full spectrum from filtering techniques allowing fundamental managers to focus on a smaller universe of investment options, all the way to algorithmic investing where the algorithm makes the investment choices and the role of a portfolio manager is to identify, assess and incorporate the investment rules into the algorithm.

At Momentum Investments we have long been supporters of quantitative investing as a complementary investment approach alongside more traditional, fundamentally based investing approaches. This was one of the reasons that we selected Robeco as our global partner, to assist us in managing our global portfolios that incorporate factor investing as well as specific sustainability metrics.

Robeco is an international asset manager founded in 1929 and a global leader in quantitative and sustainable investing since 1995. With this partnership, Momentum Investments can achieve more holistic integration and alignment of local and global portfolio allocations by using Robeco quants as a core provider in global equity funds. The partnership will also enable Momentum Investments to further improve the environmental, social and governance (ESG) profile and carbon footprint of our global portfolios.

A core belief system that we have is that well-diversified portfolios that blend a variety of different styles and approaches will create robust portfolios that will deliver strong performance relative to the portfolio objectives over time for our clients.

For more about our partnership with Robeco, visit our website here: https://www.momentum.co.za/momentum/campaigns/invest/robeco-partnership

Momentum Investments is part of Momentum Metropolitan Life Limited, an authorised financial services (FSP 6406) and registered credit (NCRCP173) provider.