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June Edition 2021

Trendrating: A Critical Edge To Maximize The Performance

Trendrating: A Critical Edge To Maximize The Performance

Trendrating is a recognized leading provider of advanced analytics and first class technology for asset managers, wealth managers, private bankers, hedge funds and advisors. Trendrating is at the forefront of the new technology platforms and sophisticated analytics that are changing the game for active portfolio managers. The company offers last generation of data and systems to maximize investment returns and reduce risks with a fully measurable and actionable

Trendrating solutions are well-validated as mission-critical by 200+ premier institutional customers and world-class partners, including Bloomberg and Euronext.

Founded by Rocco Pellegrinelli in 2013, Trendrating is helping the fund managers fight back and prove to clients they can outperform passive management strategies. We talked with him recently to get insights on the Trendrating Strategy Management Solution and how his company is helping the leading companies of the world to profit from the increasing performance dispersion.

What are the biggest challenges active managers are facing today?

Active equity investors must prove that they can beat passive products and benchmarks to justify their fees. The price trends of stocks are driven by a variety of factors where the fundamentals of a company are just one, and not always the dominant driver. Sentiment, social media, macro developments, faster readjustments from the big money have a big impact in starting and accelerating price trends. A company with good fundamentals and positive coverage from analysts does not necessarily turn into a profitable investment within a reasonable time. This is why a large part of mutual funds continue to underperform the indices, according to the SPIVA scorecard.

What’s the solution, and how is Trendrating addressing the issue?

The solution is simple – go to the core of the problem, pay attention and respect the actual price trends across stocks and sectors. As it impossible to know what are the factors that most are impacting the price development of a security, just simply analyze the result of the forces at work, analyze and measure the trend. By incorporating into the investment strategy an element of “trend validation” one can profit from the “performance dispersion“ observable in any investment universe. This phenomenon is a gold mine for active managers that have the right tools to capture at least part of it.

In 2020, if you look at the S&P 500 constituents, the differential between the top 25% performers and the bottom 25% performers was massive. The average return of the top 125 stocks was 105% while the bottom 125 recorded a -18% in average losses. This is enough to provide an opportunity for prepared, active stock pickers to beat the 16% return of the index. It is clear that if an active manager can capture a part of the top performers and avoid most of the bottom performers, then beating the benchmark is doable. 

The phenomenon of performance dispersion is a fact in any diversified list of stocks, independently how they are selected, such as market cap, value, growth, low volatility or ESG. Trendrating developed a sophisticated, multi-factor model that provides a methodology to rate price trends with a time horizon of 6-to-18 months, those trends that can make a difference in the yearly performance of a portfolio. Our massive analysis across a 20 years history for 15,000 listed stocks shows that 19% of the time a bull trend lasts more than 12 months and records a gain above 100%. That is to say that one stock out of five in a bull trend has the probability to double in price.

Our rating analytics measure with reasonable accuracy the direction and quality of the actual price trend for 17,000 securities on a global scale. Our model offers a unique rating of trends where (A) and (B) indicate a bull trend and (C) and (D) mark bear moves. We provide a unique edge where (A) and (B) rated stocks on average outperform those rated (C) and (D). We introduced an easy, actionable way to “validate trends“.

How your customers use your unique and proprietary rating methodology?

We offer a system that combines a rich set of data and a broad range of functionality.

Our “Strategy Management Solution” gives access to a library of fundamental and quantitative data together with Trendrating analytics to rate the  trends and rank the quality and consistency of price action. Combining good fundamentals with our trend quality metrics make possible to get the best of both worlds with measurable benefits in terms of enhanced performance, pragmatic risk control and robust compliance.

The system supports a number of tasks that are part of the decision process, including:

  • Validation of investment ideas and ranking of list of stocks.
  • Alerts on downgrades for a timely risk management.
  • Tactical allocation and sector rotation.
  • Portfolio analysis and optimization.
  • Design, test , optimization of personalized investment strategies.
  • Customizable reporting templates.

We have different use cases. Some customers are simply using our solution to support an advisory activity, delivering a better service and saving time. Others like to monitor managed accounts and use Trendrating to make better informed decisions, add an extra level of risk control and stay on top of  trends development. Then we have those that like to test their existing strategies and refine them by adding our data and leveraging our calculation engine.

What final message can you give to active managers to help their practice?

At Trendrating, our vision is that every strategy should incorporate an element of trend validation. It is about acknowledging, respecting and profiting from actual, observable price trends at the heart of this price dispersion, rather than strictly believing in subjective forecasts or price objectives based on whatever approach. Profiting from performance dispersion across the chosen investment universe is key to performance and it is possible using the right data and tools. This is the solution.

In order to provide documented evidence of the alpha  that Trendrating can help to unlock  we recently launched a few indices that are calculated by the premier independent agent Solactive, a leader with 11,000 indices offered. The indices are visible on the key data vendors terminals with these codes: TREULC, TREUV, TREUG, TRUS, TRUSV, and TRUSG.

We readily offer free evaluations of our data and technology platform to let active managers put our tools to the test. We encourage those interested to run an actual performance comparison of sample portfolios with and without using our methodology. Facts will show if what we say is true.

The future of active equity portfolio management and advisory is here, now for smart professionals that embrace innovation and challenge the status quo. As Steve Job once said: “innovation is the only way to win”. Make trends work for you, contact us to learn how you can also profit from our unique and proprietary range of solutions.

Meet the CEO

Rocco Pellegrinelli is the Founder and CEO of Trendrating. Rocco began his career as a portfolio manager. He created Brainpower in 1996 and established it as one of the top portfolio management systems globally. After taking the company public on the Frankfurt Stock Exchange in 2000, Brainpower was acquired by Bloomberg in 2006. He launched Trendrating with the mission to provide innovative analytics and technology that deliver alpha in a measurable, actionable, and repeatable way. In 2020, Rocco was nominated as one of the “10 Most Inspiring CEOs to Watch” by Industry Tech Outlook, as well as one of the “10 Best Innovative Leaders” by DigiTech Insight. Rocco is also a Nasdaq contributor.

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