Syz Asset Management is to adopt new technologies - namely quantitative machine learning - to help further develop its hedge fund strategy allocation.
That is according to Cédric Vuignier, head of manager research and alternative investments, who said the group would also adopt wider systematic methodologies.
This decision marks a move away from classical price and fundamental data analysis adopted until now. ‘The technology is in its early days but we think it might develop quickly,' he said.
The move comes as the Geneva group has built a proprietary risk management framework. This is as risk management has become an unavoidable part of the portfolio construction process post-financial crisis, Vuignier said.
The year ahead
In the alternative investments insight, Vuignier also revealed his investment insight for the wider hedge fund market for the year ahead.
He said the past 12 months have delivered strong performances across the hedge fund industry, while there are additional opportunities created by rising dispersion and a reduction of the intra-stock correlation.
Vuignier added that this positive environment should be further enforced by the Fed’s balance sheet reduction, tightened policy and the ECB’s tapering getting closer.
Even so, the down trend over the course of the year continued for the discretionary macro managers unwinding their post US election trades, Vuignier said.
‘Managers want to believe in the likelihood of US fiscal reforms, but we are observing a growing lack of conviction. Positioning is idiosyncratic across managers with long eurozone and tactical short S&P500.’
Unlike discretionary managers, systematic models were finally successful in extracting alpha, he said, particularly in August with sustainable trends in metals and bonds.
‘July saw some medium-term trends emerge allowing some managers to deliver gains, while the bond sell-off of June, combined with a reversal in the commodity complex, was detrimental.’
This is while equity hedge fund managers generated positive returns as markets continued to climb over the period.
‘In the US, stock market gains have been led by large cap growth stocks, namely the FAANGs. This has been very profitable for managers with tech exposure, but detrimental to managers with a value bias.’
Meanwhile, European managers haven’t yet taken advantage of the improved macro environment in the large-cap space but have been successful in generating strong results in the mid cap segment.
'Our outlook remains positive as we expect tailwinds for the strategy to materialise on the macro side as well as in the markets.
'Stock correlations have already dropped significantly this year and with rising rates looming on the horizon we expect dispersion to rise as well.'