A new returns-based portfolio style analysis tool, developed by London-based independent firm Style Research, will enable investors to analyse funds in their portfolios and investment groups those of their competitors, using funds’ historic data.
“As the European pension fund industry is beginning to move towards defined contribution (DC) programmes using investment funds, the returns of one’s competitors are public information,” says Robert Schwob at Style Research in London. “Our software enables our clients to analyse this data, providing them with a broader information on what funds are doing”
Style Research provides institutional clients with different products for analysing investments in global equity markets according to style criteria. Schwob, who started the company four years ago after having run an investment business in London, comments: “All our products are based on what I would have wanted to have when I was running my investment company but was never able to find.”
The returns-based style analysis is the latest addition to the firm’s style analysis tools and reviews the securities held within the portfolio. “To use this software you need to have the historic performance of the fund. Since this tool uses multiple returns you will need at least three years data to get relevant results,” Schwob says.
Once the user inputs the data, the software analysis the returns and behaviour of the fund, identifying its composition and tracing changes in investment strategies through the years. “You can easily get this data from sources like Reuters or Micropal and obtain information which will help you to better understand your portfolio and those of your competitors,” he says. “I certainly believe this is a very powerful tool which will enable investment groups to position themselves against their competitors.”
The analysis, based on three models – unconstrained, constrained and constrained and positive – can be done in different ways, using a sector or country-adjusted approach. “In Europe is not only about sectors that you have to worry about, so we thought we really needed to include the possibility to apply country-adjusted criteria,” he says. “I think this is one of the reasons why North American supplier of style analysis products have been finding it very difficult to break into the European market, because they don’t have the methodology to deal with the differences within the European asset management industry.”
Based on performance, the graph reflects how a fund’s strategy has been changing during the last decade. In this sample, the analysis was done following a sector-adjusted approach, and clearly shows how the fund has increased its exposure to large growth stocks over the years. Although this is an extreme case, chosen to explain the kind of information that can be obtained by using this software, the results tell that this is a clearly growth-oriented manager, who during the last few years have had a very high exposure to large growth securities, with a small proportion of large value investments and a healthy representation of small growth stocks.
“The same analysis can be done for any fund anywhere, not only in Europe but also in most of the world’s developed markets,” he says. IPE