Human investing with computer help
Matus Mrazik of the Jupiter Systematic Equities team explains how their ‘glass box’ investment approach uses computer help in what is ultimately a human process.
Any successful long-term investment approach should follow a repeatable process. A traditional stock picker might have an implicit process starting perhaps with a valuation model, personal interpretation of the current economic climate, and the stage of the economic cycle. Ultimately, stock selection might be a result of whether the investor “likes or dislikes” a particular stock based on the above information – supplemented by their experience, applying soft skills and judgement in personal meetings with management.
Our team’s systematic process, used for the Jupiter Merian fund range, is in many ways similar, with a solid traditional stock picking approach. One can think of it as a “divide and conquer” method to the traditional approach, where each individual step has been first tested for validity and subsequently coded into rules that are systematically followed by the investment team to construct portfolios. There are, however, some important differences between our systematic approach and traditional investing.
No decisions made ‘on the fly’
One of the key fundamental differences is that all criteria in our systematic approach have been decided before the stock picking takes place. No decisions are made “on the fly” and it is therefore a very dispassionate process. All rules are based on solid economic rationale and tested for validity before being put into practice. Once included in the model they are strictly followed, and although our team enhance the model itself, gradually over time, there is no ad hoc ‘tweaking’ of the individual stock picks. In fact, some of the model’s stock picking criteria are specifically designed to take advantage of a typical investor’s behavioural biases (as evidenced in academic literature), such as mispricing’s that occur due to investors’ acting emotionally and often responding sub-optimally to market events.
In our systematic approach every stock pick can be traced back to the underlying reasons/criteria for choosing that stock. Also, when that stock out/under -performs in the future we can attribute the performance to all the criteria that were set out before the stock was picked, as can be seen in the example of Sulzer below, in which its stock price chart is shown along with how our model viewed the stock on various criteria over time. This is why we often refer to our process as a “glass box” as there is full transparency throughout the process, ranging from why exactly a stock has been picked to attributing the performance ex post.
Example : SULZER
Stock characteristics
Source: Jupiter. Company examples are for illustrative purposes only and are not a recommendation to buy or sell.
How are the systematic investment criteria established?
Each of our investment criterion or rules starts with the basic yet nontrivial question: “Why should this criterion forecast future stock price movement?”. It is for example not sufficient for a stock to be cheap. A stock can be cheap due to mispricing i.e. the market incorrectly pricing the stock – perhaps due to friction in price discovery process. Alternatively, a stock could be “cheap for a reason” and yet holding such a stock might still be rewarded by a risk premium, a reward for holding a risky stock. In most cases the return to value (a systematic approach to buying cheap and selling expensive stocks) is a combination of both above schools of thought.
To find a satisfying answer to the ‘why?’ question above, our team applies scientific techniques and results from economics and statistics. When we design the rules, for example about which stocks will be classed as cheap and which as expensive, all this information is considered. Such an approach is applied to all stock selection criteria in the systematic investment process, including Dynamic valuation, Sustainable growth, Sentiment, Company management and Market dynamics. In fact, this philosophy is applied across all dimensions of the investment process from stock picking, understanding the time variation of stock picking criteria to portfolio construction and risk management.
Our systematic approach uses multiple criteria and usually stocks that are selected for the portfolios score well on more than one of them. Each criterion would have gone through a similar rigorous research process before it is incorporated into the overall model.
Source: Jupiter. For illustrative purposes only.
Treating triumph and disaster the same
Significant time and effort is put into researching, developing and enhancing new rules and criteria, with a wide variety of known and potential scenarios tested and simulated. The philosophy of our team is to be proactive and to try to answer all questions through rigorous research ahead of time, rather than reacting to current events that can cause panic. Through the lens of a specific moment in time even moderate market events can appear catastrophic – at such times humans tend to overreact, yet a dispassionate model can (to paraphrase Kipling) ‘treat triumph and disaster the same’. This is where the trust in a diligent systematic approach, refined over time, can bear fruit, offering human investing with computer help.
The value of active minds – independent thinking
Fund specific risks
- Investment risk – there is no guarantee that the Fund will achieve its objective. A capital loss of some or all of the amount invested may occur.
- Furthermore, the Fund may exceed its volatility limit. A capital loss of some or all of the amount invested may occur.
- Company shares (i.e. equities) risk – the value of Company shares (i.e. equities) and similar investments may go down as well as up in response to the performance of individual companies and can be affected by daily stock market movements and general market conditions. Other influential factors include political, economic news, company earnings and significant corporate events.
- Derivative risk – the Fund uses derivatives to generate returns and/or to reduce costs and the overall risk of the Fund. Using derivatives can involve a higher level of risk. A small movement in the price of an underlying investment may result in a disproportionately large movement in the price of the derivative investment. Derivatives also involve counterparty risk where the institutions acting as counterparty to derivatives may not meet their contractual obligations.
- Currency risk – the Fund can be exposed to different currencies and may use techniques to try to reduce the effects of changes in the exchange rate between the currency of the underlying investments and the base currency of the Fund. These techniques may not eliminate all the currency risk. The value of your shares may rise and fall as a result of exchange rate movements.
- Stock connect risk – the Fund may invest in China A-Shares through the China-Hong Kong Stock Connect (“Stock Connect”). Stock Connect is governed by regulations which are untested and subject to change. Trading limitations and restrictions on foreign ownership may constrain the Fund’s ability to pursue its investment strategy.
The fund may be subject to other risk factors, please see the Prospectus for further information.
This is a marking communication. Please refer to the latest sales prospectus of the fund and to the Key Investor Information Document (KIID), particularly to the fund’s investment objective and characteristics including those related to ESG (if applicable), before making any final investment decisions. These are available from the document library.
Important Information
Market and exchange rate movements can cause the value of an investment to fall as well as rise, and you may get back less than originally invested.
The views expressed are those of the speaker at the time of recording, are not necessarily those of Jupiter and may change in the future. This is particularly true during periods of rapidly changing market circumstances.
This is a marketing communication. Please refer to the latest sales prospectus of the sub-fund and to the Key Investor Information Document (KIID), particularly to the sub-fund’s investment objective and characteristics, before making any final investment decisions.
This document is intended for investment professionals and is not for the use or benefit of other persons, including retail investors.
This document is for informational purposes only and is not investment advice. Market and exchange rate movements can cause the value of an investment to fall as well as rise, and you may get back less than originally invested. Initial charges are likely to have a greater proportionate effect on returns if investments are liquidated in the shorter term.
Past performance is not a guide to future performance. Company/Holding/Stock examples are for illustrative purposes only and are not a recommendation to buy or sell. Quoted yields are not a guide or guarantee for the expected level of distributions to be received. The yield may fluctuate significantly during times of extreme market and economic volatility. Awards and Ratings should not be taken as a recommendation. The views expressed are those of the Fund Manager(s) / author(s) at the time of preparation, are not necessarily those of Jupiter as a whole and may be subject to change. This is particularly true during periods of rapidly changing market circumstances. Every effort is made to ensure the accuracy of the information provided but no assurance or warranties are given.
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United Kingdom: Jupiter Investment Management Limited (UK Facilities Agent), The Zig Zag Building, 70 Victoria Street, London, SW1E 6SQ, United Kingdom. The Fund is recognised by the FCA.
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For professional investors in Hong Kong only
Past performance is not a guide to future performance and may not be repeated. Investment involves risk. The value of investments and the income from them may go down as well as up and investors may not get back the amount originally invested. Because of this, an investor is not certain to make a profit on an investment and may lose money. Exchange rates may cause the value of overseas investments to rise or fall.
This communication provides information relating to Jupiter Merian Global Equity Absolute Return Fund (the “Fund”), which is a sub-fund of Jupiter Asset Management Series plc. Jupiter Asset Management Series plc is an investment company with variable capital established as an umbrella fund with segregated liability between sub-funds which is authorised and regulated by the Central Bank of Ireland pursuant to the European Communities (Undertakings for Collective Investment in Transferable Securities) Regulations 2011, as amended. Registered in Ireland under registration number 271517. Registered office: 33 Sir John Rogerson’s Quay, Dublin 2, Ireland.
This communication has been prepared for general information only. It does not purport to be all-inclusive or contain all of the information which a proposed investor may require in order to make a decision as to whether to invest in the Fund. Nothing in this communication constitutes a recommendation suitable or appropriate to a recipient’s individual circumstances or otherwise constitutes a personal recommendation. No investment decisions should be made without first reviewing the offering document (including the risk factors) and the key fact statement of the Fund (if applicable) which can be obtained from www.Jupiteram.com. This communication has not been reviewed by the SFC.
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The net asset value of the Fund may have high volatility due to the nature of the asset class invested. Your attention is drawn to the stated investment policy which is set out in the Fund’s prospectus.
For Institutional investors in Singapore only
Past performance is not a guide to future performance and may not be repeated. Investment involves risk. The value of investments and the income from them may go down as well as up and investors may not get back the amount originally invested. Because of this, an investor is not certain to make a profit on an investment and may lose money. Exchange rates may cause the value of overseas investments to rise or fall.
This communication provides information relating to a fund known as Jupiter Merian Global Equity Absolute Return Fund (the “Fund”), which is a sub-fund of Jupiter Asset Management Series plc. Jupiter Asset Management Series plc is an investment company with variable capital established as an umbrella fund with segregated liability between sub-funds which is authorised and regulated by the Central Bank of Ireland pursuant to the European Communities (Undertakings for Collective Investment in Transferable Securities) Regulations 2011, as amended. Registered in Ireland under registration number 271517. Registered office: 33 Sir John Rogerson’s Quay, Dublin 2, Ireland.
This communication is issued by Jupiter Asset Management Series plc.
The Fund is only notified as a restricted scheme by MAS and is not allowed to be offered to the Singapore retail public. This marketing document shall be construed as part of an information memorandum for the purposes of section 305(5) of the Securities and Futures Act, Cap. 289 of Singapore (the “SFA”). Accordingly, this marketing document must not be relied upon or construed on its own without reference to the information memorandum. This marketing document is not a prospectus as defined in the SFA and accordingly, statutory liability under the SFA in relation to the content of prospectuses would not apply.
This document has not been registered as a prospectus by MAS, and the offer of the shares is made pursuant to the exemptions under Sections 304 and 305 of the SFA. Accordingly, the shares may not be offered or sold, nor may the shares be the subject of an invitation for subscription or purchase, nor may this marketing document or any other document or material in connection with the offer or sale, or invitation for subscription or purchase of the shares be circulated or distributed, whether directly or indirectly, to any person in Singapore other than under exemptions provided in the SFA for offers made (a) to an institutional investor (as defined in Section 4A of the SFA) pursuant to Section 304 of the SFA, (b) to a relevant person (as defined in Section 305(5) of the SFA), or any person pursuant to an offer referred to in Section 305(2) of the SFA, and in accordance with the conditions specified in Section 305 of the SFA or (c) otherwise pursuant to, and in accordance with, the conditions of any other applicable provision of the SFA.
The net asset value of the Fund may have high volatility due to the nature of the asset class invested. Your attention is drawn to the stated investment policy which is set out in the Fund’s prospectus.
For professional investors in US Offshore only
Past performance is not a guide to future performance and may not be repeated. Investment involves risk. The value of investments and the income from them may go down as well as up and investors may not get back the amount originally invested. Because of this, an investor is not certain to make a profit on an investment and may lose money. Exchange rates may cause the value of overseas investments to rise or fall.
The Jupiter Merian Global Equity Absolute Return Fund has not been registered under the United States Investment Company Act of 1940, as amended, nor the United States Securities Act of 1933, as amended. None of the shares may be offered or sold, directly or indirectly in the United States or to any US Person, unless the securities are registered under the Act, or an exemption from the registration requirements of the Act is available. A US Person is defined as (a) any individual who is a citizen or resident of the United States for federal income tax purposes; (b) a corporation, partnership or other entity created or organized under the laws of or existing in the United States; (c) an estate or trust the income of which is subject to United States federal income tax regardless of whether such income is effectively connected with a United States trade or business.
This presentation is for informational purposes only and is not investment advice. Market and exchange rate movements can cause the value of an investment to fall as well as rise, and you may get back less than originally invested. Initial charges are likely to have a greater proportionate effect on returns if investments are liquidated in the shorter term.
Past performance is no guide to the future. Company examples are for illustrative purposes only and are not a recommendation to buy or sell. Quoted yields are not a guide or guarantee for the expected level of distributions to be received. The yield may fluctuate significantly during times of extreme market and economic volatility. Awards and ratings should not be taken as a recommendation.
The views expressed are at a point of time and are subject to change. This is particularly true during periods of rapidly changing market circumstances. Every effort is made to ensure the accuracy of the information provided but no assurance or warranties are given.
Issued by Jupiter Asset Management Limited (JAM), registered address: The Zig Zag Building, 70 Victoria Street, London, SW1E 6SQ is authorised and regulated by the Financial Conduct Authority.
No part of this presentation may be reproduced in any manner without the prior permission of JAM.
For professional investors in LATAM only
Past performance is not a guide to future performance and may not be repeated. Investment involves risk. The value of investments and the income from them may go down as well as up and investors may not get back the amount originally invested. Because of this, an investor is not certain to make a profit on an investment and may lose money. Exchange rates may cause the value of overseas investments to rise or fall.
Legal Notice for Residents in the Republic of Argentina: This document includes a private invitation to invest in securities. It is addressed only to you on an individual, exclusive, and confidential basis, and its unauthorised copying, disclosure, or transfer by any means whatsoever is absolutely and strictly forbidden. Jupiter Asset Management (Europe) Limited, will not provide copies of this document, or provide any kind of advice or clarification, or accept any offer or commitment to purchase the securities herein referred to from persons other than the intended recipient. The offer herein contained is not a public offering, and as such it is not and will not be registered with, or authorised by, the applicable enforcement authority. The information contained herein has been compiled by Jupiter Asset Management (Europe) Limited, who assumes the sole responsibility for the accuracy of the data herein disclosed.
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Aviso Legal para Residentes en Chile: ESTA OFERTA PRIVADA SE INICIA EL DÍA SEGUN LO ESTABLECIDO EN EL TITULO Y SE ACOGE A LAS DISPOSICIONES DE LA NORMA DE CARÁCTER GENERAL Nº 336 DE LA SUPERINTENDECIA DE VALORES Y SEGUROS, HOY COMISIÓN PARA EL MERCADO FINANCIERO. ESTA OFERTA VERSA SOBRE VALORES NO INSCRITOS EN EL REGISTRO DE VALORES O EN EL REGISTRO DE VALORES EXTRANJEROS QUE LLEVA LA COMISIÓN PARA EL MERCADO FINANCIERO, POR LO QUE TALES VALORES NO ESTÁN SUJETOS A LA FISCALIZACIÓN DE ÉSTA; POR TRATAR DE VALORES NO INSCRITOS NO EXISTE LA OBLIGACIÓN POR PARTE DEL EMISOR DE ENTREGAR EN CHILE INFORMACIÓN PÚBLICA RESPECTO DE LOS VALORES SOBRE LOS QUE VERSA ESTA OFERTA; ESTOS VALORES NO PODRÁN SER OBJETO DE OFERTA PÚBLICA MIENTRAS NO SEAN INSCRITOS EN EL REGISTRO DE VALORES CORRESPONDIENTE.
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Legal Notice for Residents of Uruguay: The sale of the securities qualifies as a private placement pursuant to section 2 of Uruguayan law 18,627. The securities must not be offered or sold to the public in Uruguay, except in circumstances which do not constitute a public offering or distribution under Uruguayan laws and regulations. The securities are not and will not be registered with the Financial Services Superintendency of the Central Bank of Uruguay. The securities correspond to investment funds that are not investment funds regulated by Uruguayan law 16,774 dated September 27, 1996, as amended.
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