Systematic investments

Philosophy

The investment philosophy of Macquarie Systematic Investments’ active equity strategies is based on the existence of human behavioural biases and their impact on investor decision-making. These biases create investment opportunities when investors exhibit behaviour that is contrary to that suggested by long-term statistical probabilities.

Our role as investment manager is threefold:

1. Identify the bias: Investors are irrational and exhibit behavioural biases, such as narrative fallacy, recency bias, herding, and overreaction.
2. Quantify the bias: Factors, or signals, are used to capture and capitalise on such biases to create alpha opportunities. For example, quantifiable characteristics of stocks that have proved to influence future stock returns.
3. Implement a portfolio: A diverse set of factors is combined in a portfolio framework to seek to deliver specific investment outcomes.

Process

Our investment approach is premised on using factors, or signals, to capture and capitalise on investor biases. Our investment process is therefore centred around how we develop and calibrate such factors and how they are pulled together in a robust portfolio framework.

Signals can be considered from either an alpha perspective (What are the attractive investment characteristics of stocks?) or a risk perspective (What are the challenges to this investment opportunity?).

Alpha signals distinguish between future outperformers versus underperformers, while risk signals are used to control uncertainty that can lead to both outperformance and underperformance.

At a very high level, our alpha signals reflect time-tested investment approaches, such as, but not limited to:

• Quality: Measuring the strength of a company’s business model and its sustainability of earnings.
• Sentiment: Seeking to capture positive trending behaviour that is likely to continue. Examples include strong share price momentum or strong business operating momentum.
• Value: Seeking to identify the relative valuation of a company given its characteristics, history, and peers.

Risk signals aim to capture and limit potential challenges to participating in investment opportunities. Examples of such factors include market liquidity and environmental, social, and governance (ESG).

Our investment approach takes advantage of a broad range of investment themes to drive performance while aiming to minimise any unwanted risks and seeking to produce a robust and well-diversified portfolio.

Risks

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 portfolio value variability over the short term).  Some of the significant risks of the systematic strategies are included below. 

Investment risk: The Strategy seeks to generate higher returns than traditional cash investments. The risk of an investment in the Strategy may be higher than an investment in a typical bank account or term deposit. Distributions may fluctuate, as may the Strategy’s value. The value may vary by material amounts, even over short periods of time.

Market risk: The investments that the Strategy has 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 Strategy. 

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. 

International and emerging market risk (for international and emerging market strategies only): The Strategy has exposure to a range of international economies, including emerging economies. Global and country specific macroeconomic factors may impact the investments that the Strategy has exposure to. Governments may intervene in markets, industries, and companies; may alter tax and legal regimes; and may act to prevent or limit the repatriation of foreign capital. Emerging markets may experience lower liquidity (including as a result of securities or bond markets being closed for extended periods), potential for political unrest leading to recession or war, greater potential for sanctions to be imposed on the country or its citizens, companies or institutions, increased likelihood of sovereign intervention (including default and currency intervention), currency volatility, and increased legal risk.