Singapore (23 April 2020) – Quant Asset Management’s (QAM) Shariah-compliant quant funds have turned in a negative performance year-to-date on the back of the Covid-19 pandemic, but asset managers are unperturbed.
It was built as high performance fund, i.e., high risk, high returns,” said Rizalsham Endut, Chief Operating Officer of QAM.
Rizalsham, a Malaysian, was formerly the Principal Officer/CEO of Singapore Unit Trust Limited. He also worked with Malaysia’s Permodalan Nasional Berhad, the country’s largest fund house managing PNB’s international fund.
Established in 2003 and registered with the Monetary Authority of Singapore, QAM started its Shariah-compliant equity portfolios – Shariah Global Equities and Shariah Asia Pacific – in Q4 2019, making them among the first Shariah-compliant quant funds available to Muslim accredited investors. Applying a long-only strategy, Shariah Global returned +7.58%, while Shariah Asia Pacific was up by +7.25%, as at the end of Q4 2019.
Based on simulation, the funds’ annualised return from Jan 2004 till Dec 2019, were +13.4% per annum for Shariah Asia Pacific and 10.36% per annum for Shariah Global Equities, Rizalsham said.
But Covid-19 caused the funds to give back its gains. Its Shariah Asia Pacific was down by -17.23% and Shariah Global Equities fell by -30% year-to-date as at 31 March 2020.
“In the wake of extreme volatilities such as now with Covid-19, quant funds are not spared from market volatilities. QAM always advises its clients to stay for the long term,” Rizalsham said. “Investors should take the opportunity whenever there is an extreme volatility in the market to put more money, or start investing for superior returns in the future.”
Robust Investment Process
Entirely computer driven and devoid of human emotions, QAM’s investment process is robust, he maintained. The process selects 120 out of 6,000 stocks for its global portfolio based on computerised programs that track fundamentals such as stock valuations, earnings growth and changes in analyst ratings.
“The entire investment process is quantitative and is driven by the computer,” Rizalsham said.
Prior the launch of its QAM Global Equities Fund Ltd. in 2003, the underlying quant models were subject to thousands of simulations, or back testing, with the aim of verifying “the pertinence of their recommendations in relation to different market regimes.”
These simulations demonstrated that the models developed by QAM teams were reliable in the long term and working well in whatever market conditions.
“Running the models takes many, many hours and involves millions of calculations, impossible for a human being or even a football stadium full of intelligent investment professionals to make,” he maintained.
Monthly Re-balancing
Today, on the same date every month, QAM runs the models, which will decide what fundamental factors need to be used and how they should be weighted. The models are let loose on a dynamic universe of 6,000 stocks for its global equities fund. The factors used range from earnings forecasts changes, earnings revisions, earnings’ dispersion to price to book, price to cash earnings amongst the factors. These are then always divided into two main groups, which QAM believe to be the drivers of share prices: earnings expectations and relative valuations.
“QAM uses the aggregate data from 50,000 analysts worldwide and if you think about it, earnings’ expectations always reflect every change in the relevant economic data, be it at a company level or at a macro level,” Rizalsham said. “Interest rate changes, commodity price volatility, GDP growth expectations or what have you, it always comes back into analysts’ forecasts. Analysts are the first to take up these changes into their forecasts because that is what they get paid for to do. QAM models never look at the actual buy, sell or hold recommendations because that do not add any value.”
Big Numbers Game
QAM portfolios always contain a big number of stocks from a minimum of 20 to as many as 120. “It is a big numbers game with very low individual company risk. It is never a risky bet on the fortune or misfortune of a small number of companies.”
“The main theme throughout the investment process is growth at a reasonable price and dynamism, i.e., listening to the market, the place where the smartest people and institutions put their money to work,” he said.
The stocks QAM models select will always go through a valuation and earnings momentum filter. Sometimes weighted more towards valuation, sometimes more towards momentum, but never exclusively tilted to one side, he said.
The Quant model works with any universe of stocks. For as long as it meets QAM investable criteria, the quant model can create any portfolio of stocks. -/-www.halaluniverse.net
