Inalytics offer research tool for quantitative analysis of fund managers
The recently launched Australian office of the London-based research consultancy Inalytics offers quantitative analysis of fund managers who claim to have timing and conviction skills.
Presenting at the annual PortfolioConstruction Conference in Sydney, Alessandro Lunghi, director of consulting at Inalytics, said, for the first time in Australia, superannuation funds can now use our research tools to critically assess the performance of their fund managers. At the same time fund managers who are genuinely interested in improving their performance can also benefit from our product.
He said, the Inalytics’ approach examines the behavior of fund managers and how this has an impact on alpha generation by the way they time their buying and selling decisions and how they construct their portfolios.
Up to now identifying skill when hiring and monitoring fund managers has not been an easy task. But Inalytics’ evidence-based approach to identifying skill changes all that, and when combined with the traditional methods of assessing fund managers, can enhance your confidence in knowing you have given the mandate to the right manager.
What we give superannuation funds, in particular, is the ability to verify the claims made by fund managers by ensuring more knowledgeable scrutiny of their short-term claims, making the monitoring process less subjective and more informed and allowing a better comparison with their peers.
For fund managers we enable them to get behind their performance numbers to provide better insights into their decision making processes. In particular, we can show how fund managers generate or lose alpha, how to isolate any weaknesses and adjust the processes accordingly, and provide a more in-depth peer comparison.
Inalytics is the brainchild of founder and chief executive Rick Di Mascio, who established the research house in London in 1998, having held senior positions in asset management and pension fund companies. Inalytics has more than 30 clients globally. In Australia, Queensland Investment Corporation (QIC), which has more than $50bn under management, has become a client.
Lunghi says that Inalytics’ extensive research shows that managers are prone to typical, yet avoidable, investment biases that destroy alpha.
We have identified that between 100 and 300 basis points are lost each year through poor selling and lack of focus on the underweighted stocks in the portfolio.
Yet these same managers are successful when buying stocks and selecting which stocks to overweight. Ultimately locating these sources of alpha, both positive and negative, is the key to understanding a manager’s investment DNA.
Typically we find that managers are skilled at deciding which stocks to buy, but undermine performance gains by cutting their winners too early and holding onto losers for too long. Poor decisions when selling typically cost portfolios 100 basis points a year.
This phenomenon is best explained by Disposition Effect, a theory that says investors tend to lose more money when selling than they would be by chance alone.
17-Aug-2007