Key points
- Systematic investing strategies are about applying consistent rules, managing risk with discipline, and making decisions that are more driven by data.
- Incorporating systematic strategies into a diversified portfolio can help strip out unintended biases and improve portfolio efficiency.
- Fidelity’s approach to systematic investing involves integrating fundamental analyst research into a more quantitative process of stock selection.
Reflecting on my 20+ years at Fidelity, I’ve witnessed firsthand the transformative role that systematic investing plays in portfolio management. Systematic investing is more about using a structured, often numbers-driven approach to managing portfolios. Unlike the old-school methods that lean heavily on gut feelings and instinct, systematic strategies tend to use more structured models and techniques to make investment choices. This method is all about being consistent and disciplined whilst keeping risks in check.
In portfolio management, a key to systematic investing is in providing a solid framework to generate alpha, help eliminate unintended biases and make investment decisions more consistent. It's important because it helps manage risk effectively while aiming for steady and reliable returns. In an era marked by increasing complexity and volatility in global markets, more investors are turning to systematic strategies for a clearer way of handling risk and reward when building portfolios.
The importance of systematic investing has grown, particularly in the wake of significant market events like the Global Financial Crisis where we saw more traditional quant strategies struggling with rapidly dislocating alpha and risk models. Systematic investing at Fidelity, by contrast, offers a more forward looking but disciplined approach, focusing on fundamental driven insights whilst deliberately minimising any large, non stock-specific bets.
However, systematic investing is not without its challenges. Some quantitative strategies heavily rely on backward-looking data and complex algorithms, what can be called "black box" models. This can lead to a lack of transparency - how are decisions made and risks managed?
Our approach to systematic investing seeks to address these challenges by integrating fundamental analyst research with quantitative processes. We seek to strike a balance between quant models and human insight to offer more pragmatism and stability compared to purely quantitative strategies. We start by looking at our analysts’ fundamental ratings, which are then transformed into quantifiable inputs. These ratings provide strong signals, especially during changes in buy or sell recommendations. They also ensure that our analysts' best ideas are reflected in portfolio construction without any other significant biases such as value or growth. By focusing on our stock-picking capabilities, we aim to construct portfolios more resilient to market dislocations and volatility. Our long-term fundamental views allow us to navigate market shocks more effectively than some purely quantitative models.
As we all know, AI is very much at the centre of a lot of conversations. We are starting to work alongside AI with the goal of making incremental improvements and efficiencies in everything that we do, especially in our research team. But like all quant models, AI is not 100% perfect and can introduce new challenges too. We will continue to incorporate it only where we see value and efficiencies gained.
In today's investment landscape, it’s exciting to see systematic investing increasingly recognised as a sound option for a diversified portfolio. We believe in its more structured framework that aims to enhance risk management and improve portfolio consistency, making it attractive for investors seeking stable and predictable returns in complex markets.
If you are interested in exploring how systematic investing can play a role in your portfolio, especially with Fidelity's unique approach, please contact us for more information.
