The Right Quantitative Tools for Uncertain Markets | ETF Trends

As we dissect the market’s behavior, investors may consider a practical framework for moving forward into 2021.

In the recent webcast, A Practitioner’s Guide to Quantitative Investing During Uncertain Times, Joe Mallen, Chief Investment Officer, Helios Quantitative Research, outlined the current markets investors are facing with rising Covid-19 cases in the U.S. and around the world, which has contributed to additional lockdowns and restrictions in cities, states, and countries. The additional slowdown to deal with the elevated caseloads could affect Q4 economic performance ahead. Additionally, we can’t expect any quick turnaround in the next stage of federal relief to support the slowing growth outlook.

“With increasing COVID cases and lack of finalized federal response, Q4 growth is expected to slow in the U.S. with the median economist forecast showing a 4.0% annualized growth rate,” Mallen said.

“Across 2021 the growth rate is expected to slow gradually, likely leaving the economy smaller than where we began the year until the end of 2021,” he added.

Nevertheless, Mallen argued that the Federal Reserve can still support the plodding economy through more creative monetary policies. Pundits have been claiming that the Fed ran out of bullets after the great financial crisis, but the Fed has brought out new ways and “soft power” to deal with this slowdown, such as nuanced guidance and public statements.

Looking at 12 broad economic indicators, Helios pointed out that May 2020 saw each broad category fall into historically negative territory as impacts of COVID began to ripple through the data. In October, we saw minor improvement in Economic Activity and Financial System Stress.

“The speed and direction of additional improvement is uncertain and highly dependent on Federal fiscal response and tamping down COVID case surges,” Mallen said.

Chris Shuba, Founder, Helios Quantitative Research, argued that the Covid-19 crisis could also be an opportunity for some as we witness two mega trends developing, including the rapid adoption of distance technologies and the rise of the remote work era.

Technology solutions are seeing increased adoption across all age demographics, including millennials, generation X, and baby boomers. For example, clients’ use of robo advisors are in the highest assets under management category across the millennials, gen X, and baby boomer age groups. Baby boomers have made large leaps in technology comfort during the COVID-19 crisis and have exhibited increased usage of various technologies, such as digital banking and online shopping, among others.

As a way to help advisors differentiate their practices, Helios helps create a competitive advantage by selecting and documenting the characteristics of ETFs and mutual funds. Helios delivers detailed analytics that align the client with the portfolio. For example, the provider’s Helios Wins Above Replacement, or HWAR, overall score helps financial advisors better define performance results from alpha, excess returns, adjusted capture, and total capture; a behavior and characteristics score from excess risk, tracking error, maximum fallout and maximum lag; and asset class ranking that ranks a fund to its HWAR peer group. Helios can then provide a strategy, risk assessment, timing, and exposures to best allocate to a fund investment.

Financial advisors who are interested in learning more about quantitative investing can watch the webcast here on demand.