Smart-X strategies

A smart factor portfolio with only 10 holdings that consistently outperforms the market.

Investment philosophy and process

After decades of extensive analysis and investing, we have concluded that the best means of achieving sustainable investment value is a smart multifactor strategy. This builds on the one important practical insight from the many years of advanced equity research into financial markets; namely, investors are rewarded by investing in securities that are exposed to pricing factors – either risk or mispricing. The challenge is to identify these pricing factors and estimate their influence. With the huge amounts of data and computing power now available, we have developed an intelligent automatic system that identifies, given an investor’s preferences, a handful of successful stocks. In addition, and importantly, the system dynamically updates so as to achieve sustainable success – being aware of the associated transaction costs.

Liquidity and transaction costs are important concerns in achieving real and significant returns. Our system has built such issues into the optimization process. All portfolios are designed to offer above market returns on a small number of blue chip, highly liquid stocks. Their volatility is equal to or less than their markets, as the portfolios are designed to amplify upswings but dampen downswings. This is the SMART part of our investment strategy. So, we have built a passive investment strategy (minimises the trading costs) that offers considerably higher returns than the market with the same or less volatility of returns.

This is the work in collaboration with Dr Xiaoxia Ye and Dr Peng Li