The process of the Enhanced Equity Index Fund stands on two pillars:
- Multi-factor Selection model that identifies factors that are expected to be the main drivers of individual instrument performance in the short term, and using an optimal combination of these factors to rank and select stocks.
- Portfolio construction tool that employs state-of-the-art quantitative optimisation techniques to construct an optimal portfolio that takes account of a desired risk budget or requirement.
This process performs significantly well in trending markets and when market volatility levels are subdued.
Generally most models fail to capture market inflection points; our models would also be subject to this. However the ability to reduce the risk budget in the portfolio construction phase can cushion the effects of this.