Fancy investing in a style like Warren Buffett? Interested in an esoteric batch of gold mining stocks? Want to back the development of self-driving cars?
All these, and more, are digital opportunities explored by Quantifeed, a Hong-Kong based systems provider used by wealth advisers, banks, robo-advisers and family offices across Asia.
Nobel-prize winning behaviour specialist Daniel Kahneman once analysed returns from a group of wealth advisers, and concluded their skill was precisely zero
Its systems challenge the skill of traditional active managers at a time when their skills are in question, as illustrated in the UK by the fall from grace of former star equity star Neil Woodford.
Wealth advisers also take the view that Quantifeed could also have a greater capacity to service mass affluent investors in bulk. Family offices have used it to ferret out cost-effective investment solutions, drawing on systems designed to check out risks as well as rewards
“We were asked about Warren Buffett a while back,” says chief executive Alex Ypsilanti. “It was simply a matter of deciding whether to track his stocks, or use his value style. It was a family office that wanted a customised portfolio of gold stocks. We currently run 60 models, but we are happy to discuss new ideas, and assess the risks and rewards involved.”
The self-driving theme started in 2017, using stocks like Tesla, Alphabet, Delphi and Nvidia with exposure to the sector. Other themes include cybersecurity, robotics and social media.
That said, Quantifeed’s core products are risk and goals-driven, often using factors like value and growth or even equally weighted indices which can achieve better diversity than cap-weighted indices dominated by large companies.
Co-founder Ypsilanti is a former investment bank research analyst who once worked for Bank of America Merrill Lynch. He developed Exchange-Traded Funds in Europe, as well as hedge fund replication. The other co-founder is chief technology officer Ross Milward, another former investment banker, who has experienced in delivering trading and risk systems.
Quantifeed, founded in 2013, has over ten clients in Asia including Cathay United Bank of Taiwan, DBS of Singapore and CGS-CIMB Securities, which offers derivatives exposure to Quantifeed products,
Asia is more prepared to embrace robo-advice than Europe, where investors pay dear to access the human touch. Through Quantifeed, DBS allows customers to select a portfolio, choose a risk level and invest as little as $1,000 with a few clicks, for which DBS charges a fee of between 75 and 5 basis points.
The business is backed by Lun Partners and PGA Venture, led by Peilung Lui, a serial fintech backer in Asia. He launched private equity funds and financial platforms in China, for SBI Holdings, originally part of SoftBank of Japan, after managing Asian stocks for Wilbur Ross, now US Secretary of Commerce.
Last year, US manager Legg Mason and Cathay Financial Holdings, parent of Cathay United Bank, invested $10 million in the business.
Quantifeed uses the investment tools and styles employed by asset managers to drive their decisions but chooses to apply them systematically. It might, for example, rank stocks in favour of those which are less volatile, or those which generate high returns on capital invested.
When the portfolios are handed over, Alex Ypsilanti says: “It’s up to advisers how they want to handle this. We can let them have discretion over the portfolio, or they can use our model.” In a crisis, relevant issues are flagged up to clients, to determine how to proceed.
Portfolios are subjected to risk models developed by Fischer Black and Robert Litterman at Goldman Sachs in 1990 which sets out to balance risks against returns to achieve a desired return.
Where Quantifeed’s platform retains control of portfolio management it corrects positions in the event of significant style drift and rebalances the entire customer portfolio periodically to keep exposures in balance. Core portfolios, seeking to achieve specific goals, would be rebalanced every six months.
Thematic funds, seeking performance from different sectors may be rebalanced as often as every quarter or every month. Quantifeed would use a range of ETFs, pooled funds and stocks to achieve returns,
Its rule-based systematic approach avoids the kind of impulsive sell decisions which frequently foul up active manager returns. It can make life easier for regulators, and save fees.
Rick di Mascio of data provider Inalytics once calculated that sell decisions by active managers more than wiped out all the gains they achieved from buy decisions, which tend to be more considered. Nobel-prize winning behaviour specialist Daniel Kahneman once analysed returns from a group of wealth advisers, and concluded their skill was precisely zero.