For over two decades, Robeco researchers have been at the frontier of quantitative investing. They were among the first to document factor premiums in emerging markets; to report a worldwide low-risk anomaly; to fully integrate ESG into quant portfolios; and to exploit factors in corporate bond markets. In recent years, we also invested considerable resources in innovative technologies, leading to concrete advances in the integration of alternative data, artificial intelligence (AI) and cloud computing into the investment process. We talked with four researchers that have been involved in the latest developments in these areas.
Weili Zhou: “Not in the foreseeable future. True, the industry has seen massive amounts of money flowing into factor-based strategies. Also, the performance of some factors could be under pressure for some time. People often present these two arguments to advocate for alternative signals and strategies, with the concern that “traditional” factors may be overcrowded. ”
“But, as active managers, we see this more as an opportunity than a threat. We think crowding issues have more to do with the way factors are implemented in generic strategies. These often mean following the simple textbook definition of factors, investing in transparent public indices, or implementing trades on a few days in the year.”
“Top-notch strategies require continuous enhancement of signals, optimization processes, and execution. And innovation is a crucial way to strengthen our offering and to bring scalability to our business. Here, we don’t mean that machines can fully replace humans in research. But, under human supervision, machines can help detect or even explain new patterns that are often non-linear.”
“Machines can also make research production much more scalable. Thanks to AI and automation, what could be done in a day, may be done in an hour all this explains why Robeco is investing so heavily in these areas. This is really a broad-based effort, involving many more people than just the researchers within the company.”
Thom Marchesini: “We currently use several alternative data sources in our investment process. For example, we use a news sentiment signal based on aggregated information of media text analytics. This signal recommends our stock-selection model to buy stocks that have been positively mentioned in news articles, and sell stocks that have had a less positive coverage in the media.”
Before including new signals, we always take a critical look first
“But before including these signals, we always take a critical look first. In the news sentiment example, we noticed that the naïve aggregation of news sentiment leads to undesired biases. Companies that are positively mentioned in the news tend to be larger and more expensive stocks. After correcting for these exposures, we concluded that the news sentiment signal is a diversifying addition to our momentum strategies, in both developed and emerging markets.”
Thom Marchesini: “There are numerous alternative data providers and it is virtually impossible to evaluate them all. So, it is up to us to separate the wheat from the chaff. In that process, we stick to our investment philosophy: evidence, rationale, and prudence. We will not include new data sources into our investment decision process based only on beliefs. The source has to be backed by strong empirical evidence and sound economic rationale. If we find that it does not meet our standards, we will refrain from using it.”
Bastiaan van Gaalen: “Robeco has developed and enhanced its proprietary optimization algorithm to achieve the highest net performance. The algorithm runs based on hundreds of parameters, each of which has a different impact on the outcome. Normally, when we develop a new strategy or customize a solution, parameters are re-evaluated and adjusted.”
“In the past, we did this in a heuristic way, based on in-house experience. But thanks to the large increase in customization requests and our own ambitions in terms of innovation, we have started to introduce some clever machine learning algorithms to facilitate the search for optimal settings. In this large algorithm design space, it is not desirable to do a grid search due to the curse of dimensionality.”
“Therefore, we took inspiration from the latest developments in parameter tuning for machine learning algorithms, in other words Bayesian and evolutionary guided searches, that naturally converge to a solution based on previous results. We eventually settled for one that was the best in avoiding local optima.”
AI is competing with our most experienced researchers and is now part of our standard backtests
“We have tested this technique in a controlled environment, for example, for a customization with strict ESG constraints, for which you need to loosen certain constraints to be able to come to feasible solutions. AI is actually competing with our most experienced researchers and is now part of our standard backtests.”
Wouter Tilgenkamp: “Many academic papers use monthly rebalancing of portfolios to test the existence of factor premiums. This is still common practice in the asset management world But equity markets are open every week, five days a week. So, if we kept trading once a month only, we would cut ourselves short in finding the best opportunities.”
“This is why we’ve enhanced the investment process by scouting markets throughout every trading day for opportunities in stocks we deem attractive to buy or sell. More recently, we completed the implementation of so-called wish lists algorithmically. These are lists of stocks which we can trade when an opportunity pops up at any point of the day.”
“To do this in an efficient manner for hundreds of quant equity accounts, we needed scalability. Project ‘Obelix’ (Opportunistic Block Liquidity Xapture) was launched to continuously look for favorable block trades, with little market impact. This opportunity-searching algorithm now runs on the Cloud and we have seen a rapid increase in the amount of trades being executed, resulting in substantial savings for our clients.”
The contents of this document have not been reviewed by the Securities and Futures Commission ("SFC") in Hong Kong. If you are in any doubt about any of the contents of this document, you should obtain independent professional advice. This document has been distributed by Robeco Hong Kong Limited (‘Robeco’). Robeco is regulated by the SFC in Hong Kong.
This document has been prepared on a confidential basis solely for the recipient and is for information purposes only. Any reproduction or distribution of this documentation, in whole or in part, or the disclosure of its contents, without the prior written consent of Robeco, is prohibited. By accepting this documentation, the recipient agrees to the foregoing
This document is intended to provide the reader with information on Robeco’s specific capabilities, but does not constitute a recommendation to buy or sell certain securities or investment products. Investment decisions should only be based on the relevant prospectus and on thorough financial, fiscal and legal advice. Please refer to the relevant offering documents for details including the risk factors before making any investment decisions.
The contents of this document are based upon sources of information believed to be reliable. This document is not intended for distribution to or use by any person or entity in any jurisdiction or country where such distribution or use would be contrary to local law or regulation.
Investment Involves risks. Historical returns are provided for illustrative purposes only and do not necessarily reflect Robeco’s expectations for the future. The value of your investments may fluctuate. Past performance is no indication of current or future performance.
Please read this information carefully.
This website is prepared and issued by Robeco Hong Kong Limited ("Robeco"), which is a corporation licensed by the Securities and Futures Commission in Hong Kong to engage in Type 1 (dealing in securities); Type 4 (advising in securities) and Type 9 (asset management) regulated activities. This website has not been reviewed by the Securities and Futures Commission or any regulatory authority in Hong Kong.
2. Important risk disclosures
2. Important risk disclosures Robeco Capital Growth Funds (“the Funds”) are distinguished by their respective specific investment policies or any other specific features. Please read carefully for the risks of the Funds:
3. Local legal and sales restrictions
The information contained in the Website is being provided for information purposes.
Neither information nor any opinion expressed on the Website constitutes a solicitation, an offer or a recommendation to buy, sell or dispose of any investment, to engage in any other transaction or to provide any investment advice or service. The information contained in the Website does not constitute investment advice or a recommendation and was prepared without regard to the specific objectives, financial situation or needs of any particular person who may receive it. An investment in a Robeco product should only be made after reading the related legal documents such as management regulations, prospectuses, most recent annual and semi-annual reports, which can be all be obtained free of charge at www.robeco.com/hk/en and at the Robeco Hong Kong office.
4. Use of the Website
The information is based on certain assumptions, information and conditions applicable at a certain time and may be subject to change at any time without notice. Robeco aims to provide accurate, complete and up-to-date information, obtained from sources of information believed to be reliable. Persons accessing the Website are responsible for their choice and use of the information.
5. Investment performance
No assurance can be given that the investment objective of any investment products will be achieved. No representation or promise as to the performance of any investment products or the return on an investment is made. The value of your investments may fluctuate. The value of the assets of Robeco investment products may also fluctuate as a result of the investment policy and/or the developments on the financial markets. Results obtained in the past are no guarantee for the future. Past performance, projection, or forecast included in this Website should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied, is made regarding future performance. Fund performance figures are based on the month-end trading prices and are calculated on a total return basis with dividends reinvested. Return figures versus the benchmark show the investment management result before management and/or performance fees; the fund returns are with dividends reinvested and based on net asset values with prices and exchange rates of the valuation moment of the benchmark.
Investments involve risks. Past performance is not a guide to future performance. Potential investors should read the terms and conditions contained in the relevant offering documents and in particular the investment policies and the risk factors before any investment decision is made. Investors should ensure they fully understand the risks associated with the fund and should also consider their own investment objective and risk tolerance level. Investors are reminded that the value and income (if any) from shares of the fund may be volatile and could change substantially within a short period of time, and investors may not get back the amount they have invested in the fund. If in doubt, please seek independent financial and professional advice.
6. Third party websites
Following links to any other off-site pages or websites of third parties shall be at the own risk of the person following such link. Robeco has not reviewed any of the websites linked to or referred to by the Website and does not endorse or accept any responsibility for their content nor the products, services or other items offered through them. Robeco shall have no liability for any losses or damages arising from the use of or reliance on the information contained on websites of third parties, including, without limitation, any loss of profit or any other direct or indirect damage.
7. Limitation of liability
Robeco as well as (possible) other suppliers of information to the Website accept no responsibility for the contents of the Website or the information or recommendations contained herein, which moreover may be changed without notice.
Robeco assumes no responsibility for ensuring, and makes no warranty, that the functioning of the Website will be uninterrupted or error-free. Robeco assumes no responsibility for the consequences of e-mail messages regarding a Robeco (transaction) service, which either cannot be received or sent, are damaged, received or sent incorrectly, or not received or sent on time.
Neither will Robeco be liable for any loss or damage that may result from access to and use of the Website.
8. Intellectual property
All copyrights, patents, intellectual and other property, and licenses regarding the information on the Website are held and obtained by Robeco. These rights will not be passed to persons accessing this information.
10. Applicable law
The Website shall be governed by and construed in accordance with the laws of Hong Kong. All disputes arising out of or in connection with the Website shall be submitted to the exclusive jurisdiction of the courts of Hong Kong.