Research Paper 12: Research: The Foundation for Alpha

The Research Process is the first building block in the investment process and a key metric of investment skill; it is where ideas are generated and fight for a position in the portfolio. The importance of research is undoubted. However, what is the relationship between successful decision making in the Research Process and the ultimate goal of alpha generation?

Using the Inalytics Peer Group, we uncover the relationship between decision-making success in the Research Process and alpha generation. This paper furthers our understanding of investment skill and reveals why it is essential for asset owners to assess the effectiveness of the Research Process in conducting due diligence. For asset managers, it provides a new way to analyse their investment process when it comes to idea generation and alpha generation.

Download the full study to learn more about how we go about identifying investment skill or contact us to learn more about how we analyse portfolios and decision making to improve the investment process and help select skilful portfolio managers.

Research Paper 11: Selling over earnings announcements

A key finding of the ‘Selling Fast and Buying Slow: Heuristics and Trading Performance of Institutional Investors’ academic paper, was that selling decisions in response to earnings announcements were significantly better than at other times.

One likely explanation is that these specific selling decisions are research led, as in all likelihood this is the time when Analysts and Fund Managers get together to assess the prospects for the company, probably at the highly choreographed morning meeting.

Download the full study to learn more about how we go about identifying investment skill or contact us to learn more about how we analyse portfolios and decision making to improve the investment process and help select skilful portfolio managers.

Research Paper 10: Track records luck or skill?

It is often thought that Napoleon said “Give me lucky generals” implying that he didn’t mind being lucky if it meant that he still won the battle.

In fact, Napoleon was almost certainly misquoted. It is more likely he was quoting Cardinal Mazarin, who noted that one must not ask of a general : “is he skilful?”, but rather “is he lucky?”

Clearly the consequences of relying on luck in finance are not as significant as in war, but nevertheless, it can be costly.

Download the full study to learn more about how we go about identifying investment skill or contact us to learn more about how we analyse portfolios and decision making to improve the investment process and help select skilful portfolio managers.

Research Paper 09: Does it pay to own companies that do the right thing?

Does the relationship between a company’s market capitalisation, its corporate governance and its share price return stand the test of time?

Our earlier paper tested this thesis looking at two years of data, here we conduct a more rigorous review with five years of data.

Download the full study to learn more about how we go about identifying investment skill or contact us to learn more about how we analyse portfolios and decision making to improve the investment process and help select skilful portfolio managers.

Research Paper 08: Does it pay to own companies that do the right thing?

Does it pay to own companies that do the right thing? Or is it as St. Augustine famously said, “Lord, make me pure, but not yet”. This paper puts the moral question to one side, and addresses it from a more prosaic or secular perspective by analysing whether the share prices of companies with good governance outperform the market, and by extension if poor governance is associated with underperforming share prices.

Download the full study to learn more about how we go about identifying investment skill or contact us to learn more about how we analyse portfolios and decision making to improve the investment process and help select skilful portfolio managers.

Research Paper 07: Skill + Risk = Winner

This is the first in a series of papers addressing interesting questions posed by our clients. In this case Nick Greenwood, Pension Fund Manager of The Royal County of Berkshire Pension Fund asked:  “Do highly concentrated portfolios perform better than more diversified ones?”

He kindly posed a second question of equal interest and we will be covering that in a subsequent paper. If you would also like to suggest a topic of general interest we would be delighted to see if we could investigate it.

Download the full study to learn more about how we go about identifying investment skill or contact us to learn more about how we analyse portfolios and decision making to improve the investment process and help select skilful portfolio managers.

Research Paper 06: Evidence of Skill – UK Local Authorities

Over the years, Inalytics has developed a clear sense of what characterises investment skill and a set of metrics to capture it. This paper analyses a cross section of the Managers used by UK Local Authorities.

Download the full study to learn more about how we go about identifying investment skill or contact us to learn more about how we analyse portfolios and decision making to improve the investment process and help select skilful portfolio managers.

Research Paper 05: Running Winners

Finding a winning stock may be easy for some. However, recognising that it is a winner, and having the conviction to run it, is considerably more difficult for all but the most skilful. This paper demonstrates that skill exists, introduces a way to identify it, and shows that there is almost 500 bps pa difference between the performance of Managers who have skill, and those that do not.

Download the full study to learn more about how we go about identifying investment skill or contact us to learn more about how we analyse portfolios and decision making to improve the investment process and help select skilful portfolio managers.

Research Paper 04: Separating Luck from Skill

This study pitches investment skill against luck in track records.

The superior outperformance of Australian equity managers has led to a belief that their investment skill is better compared to their global peers. We ask whether this is really the case using Inalytics Peer Group database of institutional investor decisions. We examine whether superior track records equate to investment skill to explore what makes a skilful portfolio manager.

In our research paper, we analyse 62 Australian equity portfolios from Inalytics Peer Group Database to determine whether:
1. the outperformance and success come down to investment skill or luck; and
2. lessons can be learned from about investment skill to help improve the manager selection process.

Download the full study to learn more about how we go about identifying investment skill or contact us to learn more about how we analyse portfolios and decision making to improve the investment process and help select skilful portfolio managers.

Research Paper 03: Track Records – Luck or Judgement?

Does investment skill exist and, if so, how valuable are track records in measuring it? These are perennial questions in the investment industry where in reality a track record of outperformance can be the result of sustained investment skill, or the result of blind luck.

Research papers and industry insights have consistently shown that track records are poor guides to the future performance of investment strategies. They offer little insight into the analysis of investment behaviour and are therefore imperfect in helping asset owners perform effective portfolio manager analysis. We strongly believe that looking beyond track records and working to understand the investment behaviour that drive track records can offer far more insight.

Our research used the Inalytics Peer Group Database, which contained over 215 long only equity portfolio and comprised around US$152bn of investment data by value. We focused our research on investigating how two key concepts – the Hit Rate and Win/Loss Ratio – can help inform how a portfolio manager generates alpha, and whether their track record can be relied upon as a useful indicator of skill.

Download the full study to learn more about how we go about identifying investment skill or contact us to learn more about how we analyse portfolios and decision making to improve the investment process and help select skilful portfolio managers.