All investors undertake quantitative analysis of listed companies. From a comparison of Price to Earnings ratios across companies in a particular industry to an assessment of which companies have smaller carbon footprints relative to peers. Ultimately, it’s a matter of degree: and at Redpoint we believe that a quantitative approach has many benefits for investors.
A quantitative approach is especially adept at processing information. Collection and processing of data is an important first step: every company’s annual financial statements include hundreds of individual data items.
The next step is to build models which analyse current, historical and forecasted data to determine whether a company is cheap or expensive at its current price, whether it is growing profitably or wastefully, whether its assets and earnings are of high quality and/or robust to cyclical ups and downs.
Quantitative approaches are also adept at identifying and benefiting from sentiment-based disciplines such as momentum effects, news and events-based approaches. These strategies are often very effective and uncorrelated with traditional fundamental approaches. Combining disciplines which add value in the long term as well as having low correlation amongst themselves is a key advantage of a quantitative approach to equities investment.
These models are built and developed by our investment team. This is where experience and an understanding of investment fundamentals is critical. Our ability to then codify our analysis and decision rules provides discipline, speed and consistency in our decision making.
Redpoint employs a quantitative approach to investing, this involves the application of data and decision rules to inform the best possible trading decisions and final portfolio positions.
Our approach starts with a comprehensive data set that allows us to analyse every stock in the investment universe, every day, from multiple perspectives. These perspectives are our stock selection signals which are comprehensively researched in house, founded on fundamentally based investment insights and complemented with a large body of academic research.
Our multiple perspectives framework can be summarised in the below interactive snowflake. It comprises key investment insights
Hover over snowflake arms to view our Investment Philosophy
We believe that the incorporation of Environmental, Social and Governance, issues can add value for clients and, consequently, all our strategies integrate or screen on ESG considerations. More explicitly, we consider labour standards and environmental, social, ethical and corporate governance considerations when selecting, retaining or divesting investments in our portfolios.
Concepts of company quality such as financial strength and consistent and strong profitability have long been sought after by investors. Such companies generally react better in times of stress and are more resilient to a variety of challenges faced in the normal course of business. We utilise a number of quality metrics in our stock selection process.
Our approach seeks to identify high growth companies which are changing from their current business equilibrium to a faster growth trajectory which is likely to see improved shareholder returns in the future. Our analysis focuses on profitability, profit margin and revenue earned per dollar invested as well as looking deeper in the financial statements for companies which are improving costs and improving the management of their assets and liabilities.
Buying and selling companies at favourable valuations is a central tenet of a sound investment strategy. Company valuation is determined within a robust framework that incorporates reported earnings, forecast earnings, cash flow, taxable income and return on equity. Avoiding value traps and focusing on well times entry and exit points is critical.
Revisions to broker analyst company forecasts are key drivers of market sentiment. A number of events are monitored including the clustering of analyst forecasts, the information content of analyst revisions and the forecasted impact on consensus estimates.
Investors respond to new information differently and this can result in share price momentum which can be profitably exploited. Our approach seeks to identify this effect across different peer groups and for individual companies relative to their specific peers. This provides insights into which companies and peer groups are being re-rated by investors.
Interactions of market-based data with some of the other perspectives help to provide early indications of when stocks are at the beginning of an analyst upgrade cycle, moving from being unloved to being revalued, or shifting into a cycle of positive company news.
We have the capability and expertise to manage tax outcomes according to client circumstances and analyse the specific tax position of the client and tailor tax management decisions accordingly. We assess buybacks and the 45-day rule for franking credits, trading off these considerations against the expected alpha flowing from the trade.
Our proprietary timing income model combines dividend forecasting and a systematic capture and qualitative review of dividend related news items allows us to evaluate the merits of a stock both in terms of dividend yield and the associated franking credits.
Building effective portfolios is a trade-off. The traditional approach of risk versus return is increasingly more complex and nuanced to cater for responsible investment objectives, minimising unintended tax leakage in accumulation, capturing higher income in retirement and/or building multi-objective solutions which incorporate many perspectives within acceptable tracking error limits to a set benchmark.
Redpoint’s approach benefits from our multiple investment insights, access to a range of risk models and a flexible approach to portfolio optimisation which can cater for a wide range of investment objectives. Our approach to portfolio construction also includes individual trading cost estimates for every stock across our global investment universe.
If stock selection insights are the expert drivers, then effective portfolio construction is the vehicle which enables investors to arrive safely at their destination.
At Redpoint we appreciate the complexity and benefits of building portfolios which embed a range of investment insights all working together to achieve a set objective. Institutional clients follow a similar path across different asset classes utilising a range of investment managers: both external and internal. This means that every institutional investor portfolio is different with changing needs through time.
Redpoint’s global capabilities across listed equities can be tailored to create solutions which focus on specific investment styles with varying levels of tracking error for almost any investible universe. While our approach can deliver a solution to the challenge facing our clients today, we are equally adept at developing new solutions for the ever-changing investment landscape.
Explore our investment solutions below