-
Exchange Traded Funds
-
Resources
-
Other Products
Please select your role
-
Current role selection
20 November 2024
Rapid advances in information access and computing power have made it possible to do many professional tasks yourself. And that includes financial management. From stock market analysis to online trading, it’s never been easier to DIY your investments – and self-directed investments are on the rise.1
With an explosion of digital information sources and advice, ‘DYOR’ (do your own research) has become a popular shorthand in investment communities. Almost one in four Australian investors say they consult company annual reports and websites2, and they also check news sources and seminars. Younger investors are increasingly likely to check social media too.
Source: ASX Australian Investor Study 2023
DYOR is wise advice – investors should understand what they are investing in, so they can align their expectations and outcomes,"
says Blair Hannon, ETF Strategist at Macquarie Asset Management
Hannon says it’s possible for any investor to apply the principles of fundamental analysis when deciding whether to buy, sell or hold a stock, fund or ETF. That means understanding the underlying drivers of the asset’s value – such as industry trends, management experience, and the company profit and loss statements and balance sheet.
However, doing your own research does not prevent you from following the common behavioural biases that can lead to poor decisions – such as holding a poor performing stock too long in the hope it will improve (loss aversion), or allocating more to investments that have recently succeeded (recency bias).
Even when we understand these psychological traps, they are difficult to avoid.
There is one style of investing that not only reduces the potential for these biases to influence decisions, but can turn them into opportunities for outperformance. It’s also an approach that’s impossible to implement on your own: systematic investing.
Systematic (or quantitative) investing combines data science and human intelligence to unlock the potential for above index returns. It’s a rigorous, repeatable model that aims to deliver consistent outcomes – throughout market ups and downs.
“A systematic model seeks alpha signals, or opportunities for outperformance, across the whole investing universe,” says Hannon. “It takes significant computing power and deep quantitative expertise, as well as a proven model that continually learns and adapts over time.”
Systematic investing can analyse the multitude of value drivers of every listed stock at once. It can also capture additional qualitative or unstructured data sources, like the tone of a company’s announcement or supplier/customer relationships.
While its data-led approach removes behavioural biases from investment decisions, the portfolios are still actively managed. And it requires human quantitative expertise to develop the thousands of signals and data points that enable large language model (LLM) decisions.
1. Data
Systematic investment models analyse millions of data points every week, at scale.
“It would be impossible for any one analyst or investor to understand thousands of stocks, or every company in the MSCI World, really well. But a systematic model can,” says Hannon.
For example, the Macquarie Systematic Investments team takes in over 100 million data points a week. That’s everything from return on equity to earnings per share gains, across every listed equity.
2. Signals
With access to a library of proven alpha signals, the model can then make investment decisions. Signals combine data to find potential for outperformance: some signals leverage the potential upside from underlying human biases, others might focus on risk.
“One example is the lottery effect,” explains Benjamin Leung, Head of Macquarie Systematic Investments. “A signal could look to catch the spike in price volatility in small cap stocks at the optimal moment. We can then combine multiple signals around that idea, to increase the potential for alpha.”
An active manager still provides human oversight – such as when there is a broader context to a market shift. For example, during the pandemic, a signal might highlight potential value in airline stocks due to the sell off, but only a human analyst knows that’s because the industry has been grounded by a global pandemic.
“You need signals that can work across all styles of investing. For example, overlaying quality signals with value signals can dial down the volatility of market swings,” says Leung.
That magic mix of signals is what gives systematic investments an edge.
3. Modelling
The next step is to combine a range of signals to construct portfolios, with stocks that complement each other to provide potential alpha.
“We rank every possible stock based on our model’s expectations of index outperformance, by calibrating and weighting different signals. For example, one signal might have great predictive power for tech equities, but is less relevant for stocks on the ASX,” says Leung.
Then, the investment team optimises the portfolio to mitigate risks and minimise costs. The result should be a well-balanced, diversified portfolio that avoids favouring any one style of investing.
Both fundamental and systematic investing are approaches that are actively managed, and both seek alpha. But that’s where the similarities end.
A fundamental investment manager can typically understand a narrow number of stocks really well, or has expertise in a specific sector or area – such as real estate or infrastructure.
With systematic investing, you can understand thousands of stocks really well, at a speed beyond human capability. The model also gives you a view of the stocks you don’t own, for a broad view of the investment universe.
Add signals, and you gain the opportunity to outperform the index. That’s the predictive power of systematic investing"
says Blair Hannon, ETF Strategist at Macquarie Asset Management
Because systematic investing doesn’t favour one style – such as growth or value convictions – it’s less likely to be impacted by big market swings. It also avoids the key man risk of depending on one ‘rockstar’ fund manager.
What really sets systematic investing apart is its inherent complexity.
“Every investor can do their own fundamental analysis, with varying level of skill. But you cannot DIY systematic,” says Hannon. “No one human can make sense of 100 million data points at once, or run hundreds of different simulations of alternative investment scenarios simultaneously.”
While systematic investing is too complex to do on your own, there is an easier way to access this strategy – without building your own institutional-grade computing power, or undertaking a PhD in quantitative modelling.
It’s as simple as investing in a systematic active ETF.
Super funds have long seen quant investing as a middle ground between passive and active management, with robust risk, cost and tracking error constraints3. And until recently, Macquarie’s systematic strategies were generally mostly available to institutional investors.
But now, Macquarie’s core equity active ETFs have democratised access to its model, offering listed funds with a systematic approach.
So, while replicating a systematic strategy is almost impossible for an everyday investor, you can still take advantage of systematic models – and access core active ETFs designed to seek consistent alpha.
1. ASX Australian Investor Study 2023, p67
2. ASX Australian Investor Study 2023, p40
3. Investment Magazine, Why quant investing is having renaissance with asset owners
All investments carry risk. Different investments carry different levels of risk, depending on the investment strategy and the underlying investments. Generally, the higher the potential return of an investment, the greater the risk (including the potential for loss and unit price variability over the short or long term). The risks of investing in the Macquarie Core Australian Equity Active ETF and the Macquarie Core Global Equity Active ETF include:
Investment risk: The Funds seeks to generate higher income returns than traditional cash investments. The risk of an investment in these Funds is higher than an investment in a typical bank account or term deposit. Amounts distributed to unitholders may fluctuate, as may the Fund’s unit price. The unit price may vary by material amounts, even over short periods of time, including during the period between a redemption request being made and the time the redemption unit price is calculated.
Market risk: The investments that the Funds have exposure to are likely to have a broad correlation with share markets in general. Share markets can be volatile and have the potential to fall by large amounts over short periods of time. Poor performance or losses in domestic and/or global share markets are likely to negatively impact the overall performance of the Funds.
Manager risk:There is no guarantee that the Funds will achieve their performance objectives, produce returns that are positive, or compare favourably against their peers, or that the strategies or models used by the Investment Manager will produce favourable outcomes.
Security specific risk: Securities and the companies that issue them are exposed to a range of factors that affect their individual performance. These factors may cause an investment’s return to differ from that of the broader market. The Fund may therefore underperform the market and/or its peers due to its security specific exposures.
More information on the risks of investing in the Funds are contained in the Product Disclosure Statements, which should be considered before deciding to invest in the Funds.
Important information
The Macquarie Core Australian Equity Active ETF and the Macquarie Core Global Equity Active ETF is designed for consumers who: are seeking capital growth and income distribution, are intending to use the Fund as a core component, minor or satellite allocation within a portfolio, have a minimum investment timeframe of five years, have a high or very high risk/return profile for that portion of their investment portfolio, and require the ability to have access to capital within one week of request.
The Target Market Determination (TMD), available at macquarie.com/mam/tmd, includes a description of the class of consumers for whom the Fund is likely to be consistent with their objectives, financial situation and needs.
The Macquarie Core Global Equity Active ETF is a separate class of units in the Macquarie Core Global Equity Fund (ARSN 674 553 201). A separate class of units is not a separate managed investment scheme.