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Evidence-based investing

start

Data: John C. Bogle (2007) The Little Book of Common Sense Investing

Inconsistency

99%

Less than 1% of US Equity Fund Managers are consistently skilled and able to outperform their benchmark over a 36 year period

+ info

There's an ongoing debate about whether actively managed funds are worth the higher fees they charge...

active management suffers from cognitive bias

Data: The Alpha Lifecycle, Essentia Analytics

Alpha decay

Thematic Alpha builds quickly...

slowly plateaus & then slides towards mediocrity...

before sharply mean reverting

The 75th Percentile

The 50th Percentile

‘logic is the beginning of wisdom, not the end’- Mr Spock, Star Trek VI: The Undiscovered Country

Data: The Glass Half Full, Essentia Analytics

Dispassionate exit

Hypothetical performance had managers sold their positions at peak

Basis line representing performance of index

Average funds actual return through the full lifeycle

Evidence-based?

Using research and data to invest like a scientist - not a clairvoyant

Clear desicion making and reporting

Minimising the effect of emotion and human bias

Investments spread to capture growth from a variety of sectors

Built to adapt and respond to current market conditions

A disciplined and rules based approach to buying and selling

Be objective

Rank each potential fund in a sector based on absolute percentiles relative to all others

Funds below 2nd decile are automatically sold

20% +

Funds in the 2nd decile are reviewed

10-20%

Be dispassionate

10%

Funds in the top decile are acceptable

Data: The Alpha Lifecycle, Essentia Analytics

Don't speculate

Accepting some of the initial upside will be sacrificed

Objectively capture demonstrable alpha

Exit based on evidence over speculation

Thank you!

  1. Maximum Loss
  2. Volatility
  3. Maximum Drawdown
  4. Beta
  5. Positive Periods
  6. Sortino
  7. 1-month performance
  8. 3-month performance
  9. Sharpe
  10. 6-month performance
  11. Alpha
  12. Upside Capture
  1. Alpha
  2. Beta
  3. Positive Periods
  4. 1 month performance
  5. 3-month performance
  6. 6-month performance
  7. Sharpe
  8. Sortino
  9. Upside Capture
  10. Maximum Loss
  11. Volatility
  12. Maximum Drawdown

OR

Defensive

Defensive ratios are given the highest priority, followed by a blend of Core and Responsive data, with the least importance given to Core.

Neutral

Assigns the highest relevance to a blend of ‘Core’ and ‘Responsive’ data, and gives the lowest relevance to ‘Defensive’ outputs.

Scoring

Each Factor is scored from 1-100 relative to all other sector members

The chart pictured (courtesy of the late John Bogle) shows that over 36 years, less than 1% of US equity fund managers (the red dots) are consistently skilled and able to outperform their benchmark

Low volatilityMax lossLow max drawdown(3 year)

AlphaBetaPositive periodsSharpeSortinoUpside capture(3 year)

1 month3 month6 monthPerformance

Total Score

The addition of each ranked score, each with different weighting applied via a Scenario Modifier (Defensive or Neutral)