A US asset management company used external managers for its investment products and aimed to outperform the relevant fund peer groups.  The asset manager was familiar with the academic research behind Parala's methodology and how AlphaPredictor® could be used to identify the ‘best’ managers across the economic cycle.

They wanted to see if it might be possible to identify the top quartile actively managed funds and then replicate their characteristics using low cost index tracking ETFs to effectively create a peer beating replication strategy using passive securities.

Parala used AlphaPredictor®’s forecasting module and portfolio optimisation engine to the deliver the following:

• A target top quartile peer group based on predicted fund rankings
• A portfolio strategy investing in the most liquid market, factor and sector ETFs, with the objective to track and replicate the performance of the top quartile peer group
• A 20-year backtest of the strategy so that the client could evaluate how it performed under different market conditions and relative to the peer group

Value delivered

• Since the investment strategy was implemented on a live basis beginning May 2020 through December 2024, it has outperformed the S&P 500 by a cumulative 13.1%
• The fund research team at the asset manager were also able to use the peer group analysis from AlphaPredictor® to better understand the US large blend external managers it monitored for its 3rd party fund offerings