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“There is a strong global trend towards quantitative strategies”

Institutionelle Investoren setzen derzeit im Aktienbereich verstärkt auf quantitative Konzepte. Institutional Investment-Chefredakteur Frank Schnattinger sprach dazu mit Mustafa Sagun, CIO der Aktiensparte von Principal Global Investors.

Sagun erläutert dabei die Kombination von quantitativen und qualitativen Faktoren im Modell von PGI, geht auf die hinter dem Modell stehende Research-Datenbank ein und erläutert warum Investoren zunehmend den Einsatz von quantitativen Faktoren im Investmentprozess suchen bzw. gar fordern.

Institutional Investment: Could you explain briefly the history and the track record of your Quant-model?
Sagun: Integrated fundamental research is the cornerstone of our process, combining the systematic company rankings of our Global Research Platform, with the insights and judgment of our experienced research team. The Global Research Platform is a proprietary and customized information management and screening framework, providing high-quality, real-time breadth of research coverage and peer rankings encompassing more than 10,000 companies worldwide. The Global Research Platform combines over 50 complex fundamental evaluation tools from a wide range of research specialists. Our systematic evaluation of companies is based on objective measures such as accelerating profitability, rising investor expectations, discounted cash flow valuation and market confirmation. The research platform provides our analysts and portfolio management teams with ongoing rankings of each company’s fundamental characteristics relative to peers by industry within each region and relative to various benchmark indices.  Our proprietary approach to combining multiple inputs to generate objective peer rankings provides a key information management advantage to our process.

Institutional Investment: Combining systematic data and also a research platform – what are the different steps in the investment process?
Sagun: The portfolio managers have ultimate responsibility and accountability for constructing and managing the portfolio. Portfolio managers have access to quantitative modeling tools that facilitate optimization of risk and return within the specified client parameters. The role of portfolio managers is to evaluate each potential purchase candidate in the context of its potential contribution to the portfolio’s risk and return; similarly, sales are executed with an understanding of the impact on the portfolio’s risk/return profile, which in turn guides the selection of replacement position(s).

The role of the analysts is to provide essential insights into industry trends and company-specific considerations, which help evaluate the sustainability of fundamental change and event risks.  The integration of the stock rankings produced by our Global Research Platform and the analyst insights on highly-ranked stocks provides us with a distinct information management advantage within a consistent and repeatable framework.

The portfolios are managed on a team basis. The team holds daily and weekly meetings where stock rankings, changes in rankings, and the insights of the fundamental analysts are reviewed. All of these are taken into consideration when buy/sell decisions are contemplated. Interaction between the portfolio managers and analyst is both formal and informal. Ongoing daily communications between the portfolio management team and the analysts is a critical part of the idea generation and portfolio monitoring process.

Institutional Investment:
In Germany there is quite a strong orientation towards quantitative strategies – is there a general global trend?
Sagun: Yes. There is a growing recognition that technology can be leveraged as an effective information management tool, enabling research to encompass a broader opportunity set on a timely basis.  However, we would suggest that purely quantitative approaches have inherent short comings including the risk of reacting to one time events and data anomalies. Therefore we believe it is essential to integrate quantitative methods with tradition research and human judgement. The real power of our process is the integration of quantitative and judgemental inputs, within a seamless integrated process.

Institutional Investment: Going more into detail: what is unique in PGIs approach?
Sagun: Principal Global Investors combines attributes of many of the world's most successful asset managers.  It is the combination of these attributes that sets us apart.  Our philosophy emphasizes both stock selection and disciplined risk management to generate consistent outperformance.  We employ a uniquely integrated fundamental research process that combines quantitative inputs with traditional judgmental research techniques on a consistent basis globally.

The key factors that set our product apart from our competition are:

* Breadth - our proprietary global research platform provides an information management advantage
* Depth - experienced research analyst team provides focused, independent company research
* Discipline – portfolio risk management provides consistency and repeatability

The cornerstone of our investment process is integrated fundamental research, combining the systematic rankings of our proprietary Global Research Platform with the insights of our experienced research analysts with complete alignment of focus. We differentiate ourselves through the combination of systematic disciplines, risk management tools and fundamental research analysts, which enable us to provide superior returns over time. Looking at our approach in greater depth, we believe we offer a number of additional differentiating features:

* the clear translation of a powerful and well-defined investment philosophy into consistent portfolios;
* the alignment of resources with a unified, firm-wide investment philosophy and process;
* the ability to process vast quantities of information and distill it into focused preferred stock lists;
* the predictive power of our stock ranking process, as demonstrated by our backtesting research and compelling performance results across many different strategies  – stocks demonstrating the following characteristics tend to outperform significantly and often:  improving business fundamentals, rising investor expectations and attractive relative valuations;
* the benefits of combining analysts’ insights with systematic analysis;
* the fact that models are owned, monitored and adjusted by the portfolio managers (investment practitioners), rather than a centralized “quant research resource”;
* the speed of response/implementation afforded by a streamlined decision-making process;
* the integration of information management, portfolio management and risk control, and our backtesting functionality; and
* ongoing research and development effort to maintain competitive advantages of all aspects of the process.

Institutional Investment: What is your outlook in general on quantitative factors for an investment process?
Sagun: Principal Global Investors will continue to update our processes in keeping with technological advances and market innovations. This applies in the following ways to the equity business areas mentioned below:

* Portfolio Management – We continue to improve and enhance our proprietary risk management model, as well as evaluate new portfolio management tools
* Research – We continue to expand our market coverage and have begun to add analysts to our locations outside the US with an emphasis on major money centers in Europe and Asia
* Relationship management – We will add relationship management professionals as necessary to ensure high levels of client satisfaction, while continuing our technology commitment to maintain flexible reporting that is adaptive to client needs

Institutional Investment: Finally – what is your outlook on global equity markets?
Sagun: In the global equities area, our resources are focused on “bottom up” stock selection rather than endeavors to make macro forecasts.  That is not to say that we are unaware of the global macro environment, but rather, that our focus is on how macro influences manifest themselves in terms of the relative attractiveness of individual stocks versus their respective peers. The broader Principal Global Investors organization does have extensive resources and expertise in macroeconomic analysis.    These efforts are organized as the Principal Global Economic Resource Group (ERG), which includes many of our most senior investment professionals across a wide range of disciplines.

Institutional Investment: Many thanks for your insights!

Die Aktiensparte von Principal Global Investors verwaltet gegenwärtig 60,9 Mrd. USD. Insgesamt belaufen sich die AuM von Principal Global Investors auf 213,6 Mrd. USD (Stand: jeweils 31.03.07).