Anomalies created by the popularity of 'black box' strategies including quantitative investments, structured products and sophisticated risk management are providing opportunities for traditional fundamental investors, according to F&C.
While investment strategies based on technical analysis of stock and market price movements are nothing new, F&C UK Dynamic fund manager Makis Kaketsis believes the extent to which these techniques can influence markets on a particular day has increased dramatically in recent years.
“There has been a steady revolution in the nature of market participants over the last decade, away from investors who focus on fundamental factors such as the quality of company management or the credibility of its strategy and in favour of models that are predicated on concepts such as mean reversion and co-integration,” he says.
Kaketsis says on days of heightened market volatility, automated trades triggered by model-driven investments may count for up to half of activity, without any fundamental change in company outlook.
“Model driven investment techniques, and advanced risk management tools, clearly have an important place in the modern asset management industry and they are here to stay,” Kaketsis says.
“But the anomalies that can be thrown up by all this technical selling also creates numerous windows of opportunity for those of us who continue to invest on fundamental factors.
“I therefore believe that jittery markets, which are at least in small part fuelled by adjustments in risk systems and the triggering of automated trading, present buying opportunities for favoured companies.”
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