Many areas of modern life rely on scientific research and are guided by well-defined rules that are applied systematically. When flying aeroplanes or developing new medicines we rely on physics, maths, statistics and computer science. Taking these disciplines and applying them to investment research is a natural step.
Many areas of modern life rely on scientific research and are guided by well defined rules that are applied systematically. When flying aeroplanes or developing new medicines, physics, maths, statistics and computer science are all relied upon. Taking these disciplines and applying them to investment research is a natural step.
"The key to this type of investing is not just in the models; what makes a good systematic firm is great research architecture".
The ‘black box' mythSome people call systematic investing a 'black box'. At Cantab our view is quite the opposite. Systematic investments are driven by repeatable, sustainable rules; such rules can be described and do not have to be opaque. It is the human brain, the brain of a trader who makes investment decisions, that is in fact a true “black box”.
A human brain is prone to cognitive biases caused by – among other factors – limited information processing capability, heuristics and emotional influences.
Systematic investing overcomes such shortcomings as investment decisions are handled by skilfully programmed computers performing millions of operations on millions of data points. Rules-based investment algorithms do not rely on 'gut instinct', are not influenced by fatigue or emotions and can ensure consistency of thought.
Inherent transparencyThe quantitative expertise and programming skills required to build managers’ investment systems have led some sceptics to believe systematic investing is too complex to comprehend.
In practice Cantab’s technology executes investment programs, devised by our team, following transparent and explainable coding and programming procedures. Our investment process is governed by clearly formulated and well-defined rules; part of what we do at Cantab is help explain to our investors how we invest their, and our own, money.
Why systematic macro?Systematic macro offers a disciplined and scientific approach to investing and seeks to exploit persistent statistical relationships between markets. These include trend following, also known as momentum, (relative) value and shorter term trading strategies such as statistical arbitrage and pattern recognition.
Common characteristics of the space include:
- The majority of instruments traded are liquid futures and forwards.
- Diversification across markets; trading over 150 liquid markets across currencies, fixed income, equity indices and commodities.
- Volatility is generally close to constant for many managers.
- Low correlation to traditional hedge fund and long-only programmes that invest in equities and fixed income, and limited correlation to traditional trend-following programmes.
- Funds often offer monthly, weekly and even daily liquidity.
- Systematic macro is one of the few liquid alternative investment styles which can provide diversification in investment portfolios.