What is the rationale behind Trendrating advanced analytics?
The ability to capture trends, profiting from bull markets and avoiding bear phases is the key to superior performance on a consistent basis. Investors that have a good understanding and a disciplined respect for the specific price trend of securities outperform competitors.
Any investment strategy can be enhanced by a better synchronization to trends developments.
Most investors use numerous metrics based on fundamental and quantitative data, but very few measure in a proven, objective, systematic way, the real direction of price trends and remain hostage to market noise and opinions, despite the fact that capturing trends is the key to better returns.
Trendrating fills a critical gap of market intelligence by providing a methodology to support a better synchronization for individual stocks and sectors trends, that makes the investment decision process more accurately informed about the factor that impacts performance the most – medium term trends.
How does it work?
Trendrating provides advanced analytics designed to capture trends, identifying most of the winners and avoiding a large part of the losers within a yearly horizon. Our model offers a unique rating of trends where A and B indicate a bull trend and C and D mark bear moves. We provide a unique edge where A and B rated stocks on average outperform those rated C and D. Maximizing the exposure to A and B rated stocks while avoiding or reducing positions on securities with C and D ratings has a measurable impact on returns and risks.
What’s behind the rating methodology?
Trendrating's solution is based on a “pattern recognition” algorithm that processes a large volume of data.
The algorithm works on a multi-factor analysis and uses a self-adaptive, flexible time window. When the different factors are in synch there is a high probability that a relevant trend is in place. The dynamic time window enables a more timely identification of an emerging trend and the multi-factor approach supports an effective filtering of price noise, short term volatility and false moves.
Trendrating's methodology has been developed across years of research and development by
professionals with 20+ years of experience and successful track records in building models using state of the art engines. After testing hundreds of analytical combinations across the market history of 25 years for 20,000 listed securities the final model was defined and it has been live since 2014.
How does Trendrating compare with other methodologies?
Traditional indicators from technical analysis and chart pattern studies often yield inconsistent results across different cycles and market types. They also may generate a long string of conflicting signals during ranging markets and high volatility phases.
Old school momentum investing tends to be late as it uses fixed time windows that may require time to adjust to fast changing trends. It usually works on a 9 month fixed window with the risk of being 9 months late in spotting a trend reversal.
Trendrating is the evolution of all this.
The pattern recognition algorithm is faster than old school momentum models in identifying the development of a trend, well before it becomes obvious as a consequence of several months of price moves (the basic foundation of the momentum definition).
At the same time the algorithm is designed to filter out short term moves, volatility or minor price corrections, and therefore keep a clear assessment of the real underlying premier trend and limiting erratic signals.
What are the key benefits?
Generating alpha for active managers is the mission. This translates into:
- Better performance for managed and advised accounts.
- More robust risk management.
- Greater efficiency and transparency of the investment process.
- Improved compliance.
- Global applicability.
- Time and cost savings.
How can one use the rating?
Trendrating analytics contribute to improve a number of critical tasks:
- Validating investment ideas and analysts’ opinions.
- Identifying new investment opportunities across markets and sectors.
- Portfolio management, analysis and optimization.
- Enabling pro-active advisory of wealth managers.
- Tactical allocation across markets and sectors.
- Risk control on individual holdings.
- Design, test and optimization of smart indices and strategies.
- Alerts of positive and negative trend reversals.
This can conflict with my fundamental driven investment style.
Not at all. Most of our customers use Trendrating analytics as a smart compliment to their current decision process. For example in any universe of stocks that satisfy specific fundamental metrics there will be good performers and mediocre performers. Trendrating can help to separate the winners from the losers with a yearly time horizon. Our customers then use Trendrating's analytics to refine either the stock selection from the desired universe or to adjust the exposure overweighting securities rated A and B, while underweighting those with a C or D rating. By using this simple approach they can easily increase returns and lower risks. And the impact is fully trackable. Trendrating makes it possible to get the best out of most fundamental strategies via a better synchronization to real price trends.
