Turing Technology Research:July 15, 2020
Ensemble Active Management (EAM) Portfolios - Executive Summary
EAM Portfolios are the natural evolution of traditional active investment management.
- Grounded in core investment fundamentals that institutional investors have embraced for decades.
- Reflect the latest research on alpha sourcing and delivery.
- The approach, in hindsight, is almost obvious.
- BUT, EAM Portfolios were not viable until recent Machine Learning-based technology advances were able to unlock the true potential of EAM Portfolios.
Turing Technology Research Paper:October 3, 2019
The Singular Impact of High Conviction Overweight Positions for Active Managers
Author: Alexey Panchekha
This groundbreaking research reflects the first set of findings to emerge from Turing's Hercules Database. This database contains up to a decade's worth of real-time, daily holdings and portfolio weights of actively managed mutual funds from more than $2.25 trillion in fund assets under management, reflecting data covering 70+ fund families and hundreds of funds. This database allows Turing to see into active funds at the 'DNA' level.
Key Topics Addressed:
- Manager Skill: Active managers deliver significant stock selection skill, but it is limited to only one set of stock decisions;
- Active Manager Paradox: Research identified a 'genetic defect' that is impairing actively managed funds from succeeding versus index funds and ETFs;
- Path Forward: Research also identified insights into approaches for active managers that can 'cure' their structural flaw, creating higher statistical expectations for outperformance.
Turing Technology Research Paper:January 5, 2019
Understanding Ensemble Active Management - Innovation in Action
Authors: Alexey Panchekha, CFA, Matthew Bell, CFA, and Robert Tull
EXCERPT: "The key takeaway should be that the investment industry needs to treat the construction of the Alpha Engine and the Beta Anchor as two discrete activities, and the portfolio design function should have as an explicit goal the minimization of the Beta Anchor and its dilutive impairment on performance.
The new insight is that the requirement for the Beta Anchor can be reduced, or even eliminated, if a second layer of diversification at the investment strategy level can be introduced. The simplistic beauty of EAM is that it uses a new layer of diversification to de-risk the Alpha Engine before pairing it with the Beta Anchor. Therefore the Beta Anchor's role is automatically lessened, its scale can be reduced, and the natural benefits the Alpha Engine can be delivered directly to the investor."
Turing Technology White Paper:September 5, 2018
ENSEMBLE ACTIVE MANAGEMENT: The Next Evolution In Active Investment Management
Author: The EAM Research Consortium; Contributing Editors: Alexey Panchekha, CFA, Matthew Bell, CFA, and Robert Tull
EXCERPT: "This White Paper questions the superiority of the traditional Active Management paradigm. Do stand-alone, 'single-expert' investment managers or management teams, with well-defined yet rigidly entrenched philosophies and methodologies, deliver optimal results? The conclusion, derived from a database reflecting 30,000 test portfolios and 165 million data points, was that they do not.
A new approach to investment management, referred to as "Ensemble Active Management" and representing the intersection of Artificial Intelligence and traditional Active Management, was proven the superior option."
Turing Technology's Breakthrough Research Uncovers Two 'DNA-Level' Statistics that Investors Need to Know When Selecting Funds
EXCERPT: The challenge of accurately selecting actively managed funds just got easier due to new research recently released from Turing Technology. The research, based on evaluating years' worth of daily holdings from more than $2.25 trillion in actively managed fund assets, had some paradigm-busting insights into how and where active managers add value - and where they don't.
The 'Genetic Defect' in Active Management
EXCERPT: "Active managers can produce persistent excess returns when it comes to their best ideas — but they only devote half of their capital to these investments. The result has been a shredding of the industry as investors have moved to passive index funds, according to new CFA Institute research.
Active managers have historically created highly diversified portfolios as a risk management tactic. But the approach is putting active managers permanently in the penalty box."
The Active Manager Paradox: High Conviction Overweight Positions
EXCERPT: "While our data shows that fund managers can exhibit persistent skill through their high-conviction best ideas, it also reveals a portfolio design paradox.
As the sole source of excess return, High-Conviction Overweights need to be the main emphasis of all actively managed portfolios. Any allocation to anything else will reduce returns."
Ensemble Active Management (EAM): Taming Toxic Tails
EXCERPT: "If EAM portfolios can deliver on their early promise, then Ensemble Active Management may prove to be the disruptive innovation that the active management industry has been searching for and thus could redefine the competitive balance between active and passive management."
Diversification is Causing Active Managers to Underperform. AI Could Fix It.
SUB-TITLE: "Proven artificial intelligence and machine learning techniques could help protect active managers' best ideas by offering a risk management alternative to diversification."
ETF Industry Veteran Bob Tull on the Future of ETFs
Bob Tull gives a wide ranging discussion of the future of ETFs, including his belief that one of the key drivers of the ETF will be Artificial Intelligence and Ensemble Active Management-based solutions. The section related to EAM Portfolios starts at the 11:40 point in the podcast.
Is This the ETF Industry's Next Big Breakthrough?
EXCERPT: "Like most great innovations, this potential solution did not come from an expected source. It is not an operational fix, nor enabled by a new set of regulatory guidelines, nor even conceived by an industry insider. Rather, it came out of proverbial left field, where Artificial Intelligence ("AI") and traditional investment management were brought together by a small team of mathematicians to create a new approach to generating active investment solutions. They called it Ensemble Active Management, or EAM."
Is This the Silver Bullet That Will Save Active Management?
EXCERPT: "Active managers under threat from the boom in passive investment funds can be saved from oblivion by using artificial intelligence techniques long used successfully to power everything from Netflix to forecasting hurricanes, argues a new consortium of academics, data scientists, and technology and investment professionals."
This is the next frontier for ETFs says decadeslong industry pro..
Procure Holdings President Robert Tull talks using artificial intelligence to inform exchange-traded fund investing with CNBC's Bob Pisani. Highlights Ensemble Active Management.
Artificial intelligence and machine learning are the next frontiers for ETFs, says industry pro
EXCERPT: "Artificial intelligence and machine learning could be the next frontier for ETFs to outperform the market. So says Robert Tull, President of ProcureAM, [...] Active management has been out there for a long time, underperforming," he said on CNBC's "ETF Edge." They haven't found a solution yet, and I think [a] technology [...] is going to help the marketplace today. The key to this new technology is ensemble active management."
Top Stocks to Invest In - The Active Manager Paradox: High-Conviction Overweight Positions
Do High Convictions Hold the Key to Active Outperformance?
Over or Under Weighting to Make Alpha?
Active Management has a 'Genetic Defect'; New Research from Turing Technology Uncovers Cure
Turing Technology Announces Selection of Vident Investment Advisory as Preferred Outsourced Trading Partner
Bob Tull Announces that Kathleen Neumann Joins Pegassets, LLC as President, plus Pegassets' Market Launch of Breakthrough Ensemble Active Management (EAM)-Powered Smart Beta Solutions
Bob Tull, Recognized ETF Industry Innovator, Launches Pegassets, LLC To Deliver Ensemble Active Management to Marketplace
HIDING IN PLAIN SIGHT: Farringdon Asset Management's Ensemble Active Management Portfolio Beats S&P 500 and Wins Investment Contest
NEW TAKE ON OLD DEBATE - ACTIVE v. PASSIVE: Breakthrough White Paper Details Outperformance of Disruptive AI-Based Investment Approach
EXCERPT: "In many areas, combination of models often perform better than individual models. This paper focuses on application of this approach to construct large-cap portfolios from individual large-cap mutual funds."
Breaking Through Performance Barriers
EXCERPT: "The CFA Institute recently published a groundbreaking paper - "Ensemble Active Management (EAM): Taming Toxic Tails" that is gaining widespread attention among Institutional CIOs because it introduces a new approach to active management that reflects an insightful integration of Machine Learning, a subset of artificial intelligence, and active investment management."
Fresh Innovation Appears Poised to Drive the ETF Industry for the Next 25 Years
EXCERPT: "Nearly a year ago I was introduced to EAM, [and] over the ensuing 10 months I was been able to do a deep dive into the concept, talking in-depth to the originating professionals to understand the mathematical (and common sense) underpinning of this amazing new paradigm. [ . . .] Based on what I have seen and learned over the past year, and reflective of my quarter century of experience understanding the drivers of growth and success in the ETF industry, EAM appears to me to be well poised to lead the next wave of innovation-driven expansion of the ETF industry."