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Zurich-based CIO's new fintech tool reinvents flagship fund

Zurich-based CIO's new fintech tool reinvents flagship fund

Banque Cramer has developed a fintech tool that has helped to reshape its flagship Swiss equity strategy. 

The primeSelector is an equity selection tool based on factor investing and available to anyone globally for free.

'Prime' stands for the five factors used to select equities: the Piotroski score, risk, intrinsic value, momentum and estimates.

Placido Albanese, CIO at Banque Cramer, said these factors were chosen because they are understandable for investors and work well when aggregated.

‘There are no complicated black-box calculations behind these factors. For us it was a sound combination easily explainable to every single client.’

The tool uses the Piotroski score as a quality filter, which is named after Chicago accounting professor Joseph D. Piotroski.

Albanese explained that this particular score was chosen as it helps to avoid value traps.

‘You will find stocks that have a full value point but weak momentum and Piotroski. What do you do with this value? We won’t buy it as it is likely to be a value trap.’

Fund turnaround

Banque Cramer not only offers its tool for external users but bases the stock selection for its BCC Swiss Stocks fund on it.

The strategy used to be run differently before Markus Fischer started managing it in April 2015 using the five factors for stock selection.

Albanese, who was Citywire AAA-rated in 2007, said he started experimenting with quantitative equity-selection methodology seven years ago and over the years the models have evolved and changed.

The primeSelector has a backtesting capability, which Fischer uses to assess attractiveness of the stocks for his fund.

‘Backtests are a realistic representation of what we are doing in our Swiss equity fund, just on a smaller scale, as we control its tracking error.’

Albanese added that the styles, which performed very well for two years, won't necessarily be the next winners.  

‘With the Trump victory, some leaders of the past seem to become the laggards of the future. When we see such market behaviour we want to protect some of the generated outperformance by reducing the tracking error.’

Novartis close-up

Demonstrating the capabilities of the primeSelector for equity selection Albanese assessed Novartis stock.

The maximum aggregated score of all factors is five, while each factor separately can be rated from zero to one.  

‘Novartis pre-Trump only had 1.5 rating in our model. Piotroski was half the score, risk was low because it is a pharma stock, but the valuation was no good.’

Albanese said the momentum score is still negative despite the brief rally following the Trump victory.

He added that analyst ratings over the past three months have still been negative on the stock. This may change if analysts become positive on the sector in general and start to revise their ratings upwards.

‘A positive rating change will move the score from zero to one full point in that area, meaning that Novartis would get a rating of 2.5. We expect momentum to take longer to change and valuation will get worse the more the stock rises.’

Disruptive moves

Banque Cramer offers the tool for free. The team wanted to show that it's not only big players, but also smaller banks, who can develop disruptive technologies.

The tool is currently in beta and is set to be completed by the end of this year or start of next.

‘For the B2B development, we will add APIs at different levels of integration, those will come at a cost.’ 

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