Moneyball Investing: Trust the Data, Not the Behavior | ETF Trends

How do you define risk? For Billy Beane, the famed general manager of the A’s, risk meant something far different to him than the team’s scouts. By virtue of their role as talent evaluators, their version of risk incorporated job security concerns about their own supposed expertise and know-how. Billy only cared about data. He didn’t trust his scouts or even his own mind to make the best decisions…he wanted to strip all of that out and focus only on the data.

So the question becomes: for all of Moneyball’s focus on the efficiency of data, why hasn’t the asset management community embraced the concept more?

In the upcoming webcast, Moneyball Investing: Trust the Data, Not the Behavior, Julian Koski, Co-Founder and Chief Investment Officer, New Age Alpha; and Andy Kern, Senior Portfolio Manager, New Age Alpha, will explain that New Age Alpha trusts only the data…not the behavior coming from humans interpreting vague and ambiguous information. They don’t try to predict winners; they simply aim to avoid the losers. The result is a bullpen or portfolio that seeks to unearth a new source of outperformance in any investment universe.

Specifically, the AVDR US LargeCap Leading ETF (CBOE: AVDR) seeks to track the performance of the New Age Alpha U.S. Large-Cap Leading 50 Index.

According to New Age Alpha, investors think of picking winners when their goal is to avoid the losers. AVDR aims to outperform by using the human factor to prevent the companies that are most likely to fail to deliver the growth implied by their stock prices.

Starting with a known investment universe, the S&P 500, AVDR identifies and removes the 450 companies with the highest human factor scores to create a portfolio of 50 stocks with the lowest human factor.

Combining the alpha potential of active management with the advantages of rules-based investing, AVDR seeks to outperform existing large-cap benchmarks.

Additionally, the AVDR US LargeCap ESG ETF (CBOE: AVDG) seeks to track the performance of the Alpha U.S. Large-Cap ESG Index.

Like AVDR, AVDG aims to outperform by avoiding low-rated ESG companies that it believes are most likely to fail to deliver the growth implied by their stock price. Starting with a known investment universe, the Refinitiv U.S. Total Return Index, AVDG applies negative screening to remove all but the highest-rated ESG companies and stocks with the lowest human factor to create a portfolio of 50 highly-rated ESG stocks that provide the potential to outperform.

“New Age Alpha has built a solution suite using probabilities to deliberately avoid the losers. By doing so, we have divorced ourselves from traditional portfolio management ideas and, instead, drawn on the actuarial principles of the insurance industry,” according to New Age Alpha.

“We believe this approach can help drive long-term portfolio outperformance without the risks traditionally associated with active investing. Our actuarial-based investment methodology is designed to be used across investment universes and geographies. We are not repackaging another traditional investment factor, and our goal is not to replace existing portfolio allocations. Our solutions complement investors’ existing market exposures by avoiding the losers.”

Financial advisors who are interested in learning more about the rules-based investment strategy can register for the Wednesday, December 15 webcast here.