This article was produced in partnership with Macquarie Asset Management.
In today’s digital age, information is no longer scarce – it’s overwhelming. Investors are inundated with data from companies, analysts, government bodies, media, and social channels, creating an avalanche of information. This explosion mirrors the evolution of food availability – from days of hunters and gatherers to the aisles of abundant choice today. As a key driver of our health, our need for nutrition is no longer dictated by the success of the hunt, or the seasons – but only our ability to manage primal cravings for fat and sugar and guide it towards moderation and healthier alternatives.
Investors now face a similar challenge: not how or where to access information but how to filter it and protect their thoughts from biases. This is where systematic investing offers an edge, transforming raw data into a “balanced meal” of meaningful insights.
The shift from information scarcity to overload
Historically, investment success hinged on information asymmetry, with analysts working as “hunters”, canvasing the world to uncover scarce insights. Their edge lay in their ability to discover accurate, real and disparate data – a task that often required traveling afar, asking investigative questions and creating methods of abstraction and comparison like the many financial ratios that are in use today.
Today, information is as abundant as ingredients in a modern grocery store, and rather than the hunt, digesting all this information has become the new challenge. The pace of growth for this “datasphere” is accelerating daily – with streaming services, social media, and countless market commentators, today’s investors are bombarded by data from all sides. Financial news volume has surged over the past decade, and these influences create a daunting environment where deciphering signal from noise is increasingly challenging. Compounded by the rise of generative AI, this growing “processed” information landscape makes discerning genuine signals from noise even more critical.
Objectivity: The key ingredient in systematic investing
In a systematic approach, the true value and relevance of information is objectively quantified. Advanced data, statistics, and technology allow us to pinpoint what truly matters and disregard the rest. By narrowing the focus, we avoid the “empty calories” of irrelevant data, much like using a nutritional label to choose healthy ingredients. In Macquarie’s research process, only around 10-15 per cent of data points are deemed material enough to be incorporated into our systematic investing decisions. This disciplined approach helps keep investors’ portfolios focused on a proven, sustained long-term strategy rather than indulging in tempting, hot off the press, but ultimately unnecessary, information.
Extracting meaning: Avoiding bias and building a balanced “meal”
The edge in systematic investing today lies in extracting meaning objectively, free from biases, preferences, or personal interests. The abundance of information magnifies the behavioural biases that plaques human decision making. Accelerated by the pathways laid by social media, tendencies such as FOMO (fear of missing out) – compel investors to chase trends, rushing into thematics like AI, leading to inflated valuation and often at times with greatest risks of corrections. In this environment, systematic investing helps by emphasising discipline and avoiding reactionary behaviour.
This approach is akin to creating a balanced meal instead of indulging in the “junk food” of tempting but low-value data points. With structured research and robust processes, we create a platform that enables evolutions in line with market environments, consistently uncovering opportunities not only across the entire market but also in different market conditions – maximising the chance of achieving greater risk adjusted returns.
Adapting to Different Market Environments
Just as chefs adjust recipes with the seasons, different market environments call for tailored strategies. Systematic investing allows for adaptation, adjusting factors to align with prevailing market conditions and rigorously preparing for evolving ones. The feedback process between outcomes and predictions ensures the process and investment thesis is robust and relevant.
During the unpredictable market volatility of 2020 to 2023, systematic investing provided an agile and adaptive framework against evolving market drivers. The approach detected and acknowledged the shift away from growth towards value, without speculation, biases or prejudices – enabling effective management of evolving risks and capture of new opportunities. The dynamic and learning mechanism critically adjusts to ever changing markets, protecting investors from drawdowns and volatility typically experienced by exposure to single investment styles such as value, growth, quality or market capitalisation.
Transparency and trust: Not a black box
Contrary to popular misconceptions, systematic investing is anything but a “black box”. Each parameter is meticulously researched, crafted, and documented, fostering transparency and trust in the process. In fact, adoption by institutional investors of systematic strategies is an endorsement of transparency and its ability to fulfill their strict governance and fiduciary duties compared to discretionary strategies. The systematic nature of the approach ensures consistent application of the investment philosophy, and a clearly articulate process of uncovering, distilling, and assembling investment ideas in a transparent, consistent, and thoughtful manner.
Delivering consistent, targeted outcomes
In an age where information is omnipresent, systematic investing empowers investors to transform data into a balanced and nourishing “meal”. The real advantage lies not in hoarding information but in skillfully selecting and combining insights to produce consistent, meaningful results. Just as we choose foods that contribute to our health, investors can now choose insights that lead to healthier, more resilient portfolios through strategies such as those adopted in systematic investing.
Benjamin Leung is head of systematic investments at Macquarie Asset Management.
