A new data-driven methodology has been released by Inalytics, a company that specializes in analyzing investment performance, to help asset owners distinguish between competence and luck when choosing managers.
Data science is used to quantify the effects of the decisions that asset managers make when managing the concentrated, bottom-up portfolios that currently dominate the investment landscape. The model was developed by Inalytics through analysis of $22 trillion worth of trades in a database it built over 20 years. It implies pension funds and other institutional asset owners may evaluate the investing abilities that actually matter when selecting managers to operate mandates for the first time in the modern period.
The "DECSIS" model examines the four key processes and investing decisions that Inalytics has identified as having the potential to produce alpha in equity portfolios: stock selection, position size, trading activity, and holding durations.
The model enables asset owners to clearly identify the areas where asset managers add or subtract value by analyzing these four drivers and demonstrating how they affect a portfolio's overall performance. This allows for more effective manager searches as well as more informed due diligence and monitoring procedures.
Fund managers may also utilize the model as an assessment and coaching tool, giving them detailed information on the decisions they need to make better in order to increase performance.
Share
Similar Articles:
