Building a data-driven feedback loop
Armed with this data and aided by the expertise of their Essentia Insight Partner, the fund’s portfolio managers set about implementing a data-driven plan to improve performance and mitigate alpha loss.
Essentia Insight Partners are former portfolio managers who work one-to-one with clients as specialist coaches that can interpret and adapt Essentia’s proprietary analytics to each manager’s investment process. They also configure the behavioral nudges that are a key part of the Essentia Insight offering.
Tailored to each portfolio manager’s needs, our automated, intelligent nudges can be used both to capture valuable context about a PM’s decision-making, and act as an alert when an adverse behavioral pattern or significant decision point is emerging.
In this case study, you’ll learn how the PMs integrated a number of behavioral nudges into their day-to-day investment process. This included Essentia’s Alpha Decay Nudge (which provides an automated heads-up of each position that has passed what has historically been that manager’s “peak alpha” point) and the Vulnerable Position Nudge (based on a complex set of backtests, this nudge notifies the PMs of positions in the portfolio that have exhibited sustained underperformance such that, historically, now would have been the time to act).
Smarter behavior – Stronger performance
By integrating Essentia’s insights and making a series of adjustments and improvements to their decision-making process, the fund featured in this case study was able to generate 400bps of additional alpha through more deliberate decision-making around small positions, and 600bps per annum of additional alpha at the overall portfolio level.
Driving this improvement was a drastic reduction in the time they took to exit a stock once they had decided to do so (from as long as 70 days in 2016, to less than a week today), in addition to a more deliberate rotation out of smaller, lower conviction positions.
See the full case study for performance and skill improvement detail