Bill Hortz's picture

[Shifting investment markets driven by uncertainty and volatility create challenges and opportunities. According to Nigel Bolton, co-global head of equities at BlackRock - “Investors can now expect a decade of higher inflation and lower returns”. Many analysts are calling it a “regime change” in financial markets and warn that this can expose the inadequacy of several conventional investment strategies like index investing. In this new market cycle, it will become vital to have the tools to spot emerging risks and opportunities across stocks. The ability to act quickly will make a difference in an unstable market.

To explore how to respond to this changing investment cycle, we went to Institute member Rocco Pellegrinelli CEO of Trendrating – a Swiss-based, global leader in the field of advanced analytics and “trend capture” technology providing advanced price trend analytic solutions for active investment managers. He has stated that “many analytical tools make sense, but do they also make money? It is time to bring real value to fund managers.” He launched Trendrating with the mission to provide innovative analytics and technology that can deliver alpha in a measurable, actionable, and repeatable way. He strongly believes that adopting sophisticated analytical tools is the only solution for this new regime.]

Hortz: Can you explain this declaration by many analysts and pundits about our entering a “new regime” and what are some of the consequences of this change for investors?

Pellegrinelli: History demonstrates how equity markets enter long periods of high returns, followed by lengthy periods of lower returns. These periods are called secular trends. It is important to acknowledge that investment strategies that work in bull markets may not be effective in flat or bear markets and investment managers must prepare a plan to handle this.

Index returns can stay volatile and erratic for years as the market will fluctuate with sizeable waves up and down across different investment quarters. Passive strategies after a decade of spectacular growth may prove to be unprofitable in the absence of a sustained bull market. Those investors that stick to the status quo and continue to use the exact same strategies that worked for them in the bull market will be exposed to disappointment and high business risks.

The biggest consequence of this new regime is that active management will be back in demand with performance dispersion across stocks providing the opportunity to outperform. For example, during the last 6 months ending on October 15th 2022, the SP500 index was down around 6%, but the top 25% performers in the index were up on average 16.8% and the bottom 25% were down 19.7%. Profiting from this new regime and performance dispersion requires carefully designed and well-tested strategies to select the winners and avoid the losers that exist in any market wave.

Hortz: How exactly can advanced analytics help active managers in this new environment?

Pellegrinelli: Advanced analytics are a game changer for many portfolio managers that today cannot leverage their full potential due to the lack of access to leading-edge technology that larger institutional investors have access to that provides more market intelligence, insights, risk management, and discovery opportunities.

Analytics like ours offer access to a whole world of market intelligence and insights that can support active managers to build, fine-tune, and validate their own winning strategies for the new cycle. The ability to test and compare strategies across years provides evidence and confidence.

Hortz: In this new market regime of low returns and volatility, can advanced analytics tell us what investment fundamentals work best?

Pellegrenelli: Our Strategy Builder tool, as an example, was developed to support the design, historical test, optimization, and documentation of investment strategies using a rich data set and analytics. Investment managers can select their preferred fundamental metrics to evaluate results, then explore other combinations of value and growth metrics and discover the most effective combinations of rules and parameters producing the best investment strategies for the current investment environment.

The ability to select and combine different rules and parameters empowers managers to create, validate, and document the best strategies. Our solution offers a new paradigm to leverage the investment manager’s skills and knowledge base.

Hortz: Can you walk us through an example of how investment managers can utilize these analytic tools to fine-tune their investment strategies for this investment climate?

Pellegrinelli: Here is a logical sequence supported by the Trendrating system:

 Step 1 – you can run a comparative analysis of different fundamental metrics to learn the actual contribution and discover what fundamentals better capture the outperformers. It is interesting to see the difference in performance across the single metrics.

Step 2 – you can then explore a few combinations with two fundamental parameters to discover if and how it is possible to improve returns. Exploring alternative combinations of fundamental rules can lead to discovering superior strategies to select stocks. It is possible to maximize the performance using a combination of fundamental metrics that enables a better selection and higher returns.

Step 3 – after selecting the best combinations in step 2, you can add a level of “trend risk” control to validate positive trends and avoid stocks in a bear phase. A sound plan should incorporate this type of price trends valuation element to better assess risks and opportunities across sectors and stocks. When consistent selling pressure overwhelms good fundamentals, a bear trend takes place, irrespective of any reasonable assumption.

Acknowledging and respecting trends is a sound practice. Capturing trends is the essence of successful investing. Ignoring trends is negligent and unsafe in this tricky market cycle.

Hortz: Can you provide some recommendations and advice to active investment managers on using advanced analytics tools like yours?

Pellegrinelli: Be open to trying new investment analytics and technology by realizing that they are being designed to leverage your skills and help maximize your performance, not replace you or your core investment strategies. Use the technology to reassess the facts, easily test your current metrics, explore new ideas, gain insights, add more quality boxes, expand your knowledge, and better support your decisions.

Trendrating solutions provide additional market intelligence to navigate this new regime. More than two hundred institutions use our advanced analytics as a critical component of their optimized investment decision process. We invite active investment managers to contact us for a free test and evaluate the new standards of market intelligence they can use to tilt this new regime from a challenge into an opportunity.


The Institute for Innovation Development is an educational and business development catalyst for growth-oriented financial advisors and financial services firms determined to lead their businesses in an operating environment of accelerating business and cultural change. We operate as a business innovation platform and educational resource with FinTech and financial services firm members to openly share their unique perspectives and activities. The goal is to build awareness and stimulate open thought leadership discussions on new or evolving industry approaches and thinking to facilitate next-generation growth, differentiation, and unique community engagement strategies. The institute was launched with the support and foresight of our founding sponsors – Ultimus Fund Solutions, NASDAQ, FLX Networks, Advisorpedia, Pershing, Fidelity, Voya Financial, and Charter Financial Publishing (publisher of Financial Advisor and Private Wealth magazines).


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