This could be set to change however and UK wealth managers will soon have something new to consider when deciding on the asset allocation process used to serve their clients’ needs.
Quantamental is a rather clunky term derived from the combination of quantitative and fundamental to form what its proponents would argue is a distinct, more sophisticated way of analysing individual equities and asset classes in order to make good investments.
Multiple different data sets and other variables are modelled to form strong conviction views on the prospects of a stock or grouping of stocks. These include things such as company financials, historic valuation movements, price/earnings ratios combined with measures of market sentiment.
Dave Pope, MD of quantamental research at S&P Capital IQ said his team develop both long and short investment ideas which pay off over a one to three month timeframe typically, sometimes longer. “A major focus for us at the moment is analysing the impact of corporate events and how investors can use them to find investment opportunities. An example would be identifying and modelling the effect credit rating and CDS price changes can have on equity prices.”Other examples include CEO or CFO turnover, the presence of activist investors and dividend policy changes," he said.
A significant majority of S&P’s current clients buying this kind of research are single stock focused investors such as hedge funds and equities fund managers, however there are some wealth managers amongst them who make single stock investments on behalf of clients.
The proportion of clients falling into the wealth manager category may well rise though as S&P is planning to roll out a quantamental research series in mid 2015 offering investment ideas for asset classes or sectors within the equities space, as opposed to single stocks.
Pope is optimistic about the prospects for this kind of service within the wealth management space. “I see a lot of money flowing towards wealth managers and I see their level of sophistication increasing over the coming years,” he said. “They will be looking for new tools and ideas to meet their clients’ needs so I think there can be significant growth.”
One possible benefit for wealth managers from such a service which springs to mind is that not only should it help to maintain or improve portfolio performance if it does what it says on the tin, it also could be leveraged to help meet post-RDR demands for transparency and justification of investment decisions.
A neutral third party research provider recommending a particular stock or asset class with data to explain the reasoning could go some way to dismissing questions of bias in the funds and stocks chosen by DFM's on behalf of clients.
No doubt if S&P's upcoming offering proves a success both in terms of its accuracy and take-up others will soon see the light of day.