ACTIVE ETFs

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Active ETFs: Systematic Mythbusting

Ahmed, I heard that 'Systematic investing is run by computers and is just algorithms making decisions autonomously'.

 

Is that true?

 

[AHMED]:

Well, the main thing here is that investing starts and ends with people.

 

While computers play a role in systematic investing, human intellect and oversight is crucial.

 

Our team of over 200 portfolio managers and researchers ask fundamental questions, test ideas, and build and oversee models.

 

We leverage technology for what technology is good at, be that be that portfolio construction or data collation.

 

But it is the people in our team who oversee the model output and approve any model recommendations before these positions are traded.

 

And it is the people who are ultimately responsible for the performance and risk management of the portfolios. 

 

The process really is a blend of people, data, technology – a human machine team approach.

 

[OFF CAMERA]:

Thanks Ahmed. Adam your turn. You’ve got 20 seconds to tell me if 'quant is a black box.'.

 

[ADAM]:

Far from it.

We ask the same questions about stocks that any traditional manager would ask.

 

We're transparent about our data and insights measuring the stock attractiveness in our global investible universe daily.

 

Every active position is measured in terms of its contribution to the portfolio's expected return, risk, and information ratio.

 

The systematic team apply market insights to their decisions just like any other investor.

 

[OFF CAMERA]:

So, it's not just high-frequency trading with machines?

 

[ADAM]:

This isn't about high-frequency trading with autonomous machines – human involvement is absolutely crucial.

 

All the data and computing power in the world can't generate consistent investment returns without human oversight and expertise.

 

[OFF CAMERA]:

Thanks Adam, Ahmed, back to you, are 'Systematic and fundamental investing in direct competition.'

 

[AHMED]:

Actually, they're not.

 

They share similar characteristics and both aim for alpha, but use different techniques.

 

Fundamental investing is manager-centric and relies on collective expertise paired with deep insight.

 

Systematic investing, on the other hand, is model-driven with portfolio manager oversight.

 

Let’s dig into this a little further.

 

Positions are sized using technology rather than human conviction, and our core competency is all around breadth, that is, spreading risk across more positions.

 

Both higher conviction fundamental strategies and more diversified, lower active risk systematic products have a place in the whole portfolio, they’re not in competition.

 

[OFF CAMERA]:

That clears that up - Ok final myth – Adam. Does 'big data and AI drive all the ideas.'

 

[ADAM]:

Saving the best till last?

 

PMs and Researchers are the true source of our investment ideas.

 

People excel at asking questions and understanding the market environment.

 

And people bring the passion, creativity and judgement to the systematic process

 

Technology helps us gather big data and test our ideas against this data.

 

Our expertise is enhanced by AI, it doesn't replace it. We can then systematically apply successful ideas across thousands of securities a day.

 

We like to think of it as 'Artfully intelligent investing'.