The three key questions for all investors: Why this strategy? Why now? Why pick it over its peers?
Quantitative discipline and a value style adjusted for quality combine very nicely into an environment when both elements are playing well and when diversification and tuning out noise are important considerations for investors, argues Dr David Walsh, Head of Investments at RQI Investors.
Quantitative investing is not a black box, argues Walsh in the above WealthWhys video, elaborating: “It is the systematic, disciplined application of good investment ideas. So, if we can take good investment ideas and apply them in a systematic and disciplined way, then we have achieved a risk-controlled and diversified exposure on behalf of our clients.”
The quantitative value component of the process meanwhile aims to take “a systematic and disciplined tilt towards a long-term value premium” says Walsh. “We capture that through our disciplined process, which has been going at RQI Investors since 2008. It is very robust, competes very well in the market and we are very comfortable with it.”
To protect against being exposed to ‘value traps’ – that is to say, companies that are cheap for a reason and unlikely to revert to their mean value,” Walsh explains: “We overlay on top of our systematic value exposure a model that tries to reduce our exposure to value traps and to increase the exposure to companies that are more likely to revert.”
A quantitative value approach gives us the ability to capture the current trends in value in a disciplined way in an environment when value is paying off and probably will continue to pay off for quite some time.”
Moving on to why investors should consider adopting a quants approach to value at this point in time, Walsh describes the quantitative discipline as “a good through-the-cycle investment process” before noting value “has always rewarded long-term holders”.
“Value tends to outperform alternative styles, such as growth, consistently through every cycle – perhaps not in a particular period but, on average through time, it does,” he continues.
“So a quantitative value approach – the combination of a quantitative approach with a value overlay – gives us the ability to capture the current trends in value in a disciplined way in an environment now when value is paying off and probably will continue to pay off for quite some time.
“And, in an area when data complexity and behavioural issues and noise in the markets makes it very hard to find out what is actually going on, that quant discipline allows you to capture that.”
Quality overlay
As for what differentiates the RQI Global Value strategy from its peers, Walsh points again to “the combination of quantitative processes with value, combined with a quality overlay”. “So we have that discipline and we have a long track record of running strategies in that way, with a great deal of success,” he argues.
“And the opportunity set that presents for us as investors to meet the demands of many clients across many different portfolios is clearly there for us – and we would like to present that to many clients, if we can. The idea of quantitative discipline and a value style – adjusted for quality, as I said – plays very nicely into an environment when value is playing well, when quantitative discipline is playing well and when diversification and tuning out noise are important considerations in investment portfolios.”
Dr David Walsh, head of investments, RQI Investors
A full transcript of this interview can be found after this box while you can view the whole video by clicking on the picture above. To jump to a specific question, just click on the relevant timecode:
00.00: Why should investors take a quants approach to value?
01.12: Why invest that way now?
02.21: Why should investors allocate to your strategy rather than one of your peers?
Why should investors take a quants approach to value?
Quantitative investing is the systematic, disciplined application of good investment ideas – that’s how we have always thought of it. It is not a black box. So, if we can take good investment ideas and apply them in a systematic and disciplined way, then we have achieved that diversification and a risk-controlled and diversified exposure on behalf of our clients.
The quantitative value component aims to take a systematic and disciplined tilt towards a long-term value premium – and we capture that through our processes. To cushion ourselves against being exposed to what we might call ‘value traps’ – which are companies that are cheap for a reason, those that are not likely to revert – we overlay on top of our systematic value exposure a model that tries to reduce our exposure to value traps and to increase the exposure to companies that are more likely to revert.
That disciplined process has been going since 2008 at RQI Investors, which we are very comfortable with. It is a process that is very robust and competes very well in the market.
Why invest that way now?
Quantitative investing has done quite well for a while. It goes through periods when it does not do so well because the market is pricing in the factors in very singular ways – for example, extreme runs towards low-quality names and the like. Generally, though, quantitative discipline is a good through-the-cycle investment process.
Value investing has always rewarded long-term holders. So value tends to outperform alternative styles, such as growth, consistently through every cycle – perhaps not in a particular period but, on average through time, it does.
So a quantitative value approach – the combination of a quantitative approach with a value overlay – gives us the ability to capture the current trends in value in a disciplined way in an environment now when value is paying off and probably will continue to pay off for quite some time. And, in an area when data complexity and behavioural issues and noise in the markets makes it very hard to find out what is actually going on, that quant discipline allows you to capture that.
Why should investors allocate to your strategy rather than one of your peers?
Well, the RQI Global Value strategy is differentiated because it does that combination of quantitative processes with value combined with a quality overlay. So we have that discipline and we have a long track record of running strategies in that way, with a great deal of success.
And the opportunity set that presents for us as investors to meet the demands of many clients across many different portfolios is clearly there for us – and we would like to present that to many clients, if we can.
The idea of quantitative discipline and a value style – adjusted for quality, as I said – plays very nicely into an environment when value is playing well, when quantitative discipline is playing well and when diversification and tuning out noise are important considerations in investment portfolios.
