Turing Technology was founded in 2016 by two world-class applied mathematicians with a long history of innovation and entrepreneurism. And in just a few short years, they have already begun using advanced technology to gain new diagnostic insights into how active investment management functions, as well as deploying that technology to reshape active investment management on multiple fronts.
Turing is not, however, an investment management or advice firm. It is a technology company that licenses its technology and Intellectual Property to investment management, insurance, brokerage, RIA, and wealth firms to allow them to create and deliver superior investment solutions.
Turing embraces the concept that transformative innovation emerges from a foundation of expansive and diverse areas of expertise, coupled with access to impactful, actionable data and the capacity and willingness to follow the data wherever it leads.
In support of these philosophical guideposts, the founders have multiple masters and doctorate degrees, and have developed critical expertise in such diverse areas as investment fundamentals (one of the founders is a CFA Charterholder), Machine Learning, genome research, fractal structures, non-linear dynamics phenomena, pattern recognition, dynamic and multi-asset risk modeling, and equity derivative trading. And clearly, the founders have a mathematician's commitment to ensuring fact-based decision-making.
Over the past several years Turing has perfected its algorithms and other technologies, built out the Hercules Database, expanded its Intellectual Property portfolio and began its commercialization efforts. Fundamental to Turing's success are the following:
Over the past several years Turing has built out a first-of-its-kind database capturing up to a decade's worth of real-time, daily holdings and portfolio weights of actively managed mutual funds. The Hercules Database currently reflects information from more than $3 trillion in fund assets under management, reflecting data covering 70+ fund families and hundreds of funds. And the Database is still growing.
This daily, holdings-based data allows Turing to look inside mutual funds at the 'DNA' level, and has allowed Turing to gain unprecedented insight into the cause-and-effect of fund managers' decision-making.
In addition to supporting breakthrough research, this enhanced data source is 1) critical to creating a 'roadmap' forward to design superior investment solutions for our clients, 2) the raw materials enabling Turing to create next generation investment solutions such as Ensemble Active Management Portfolios, and 3) the basis of an emerging data research business.
See the section on the Hercules Database under "Our Technologies" to learn more.
Without question, the highest value application of the Hercules Database is our ability to build Ensemble Active Management ("EAM") Portfolios for clients. EAM Portfolios were devised by Turing Technology as a logical solution to the structural flaws1 of traditional actively managed investment portfolios.
The book Moneyball taught us that data-driven decision-making can unlock insights that can literally transform industries. Just like On-Base-Percentage trumps Batting-Average in baseball, better informed decision-making will invariably win out. EAM Portfolios are a direct extension of this concept.
While Turing invented the concept of EAM Portfolios, Turing does not 'manage' investment portfolios. Rather, we assist clients in designing their own EAM Portfolios, and then use our technologies and data to deliver to our clients a Data File every 14 days of (typically) 50 stocks with portfolio weights that reflect their design decisions. Our clients would then implement the investment solution in the manner and vehicle of their choosing. As of the end of September, 2019, Turing had more than 30 EAM Portfolios in live production.
EAM Portfolios can be designed to compete within virtually any US equity-based investment mandate, whether traditional mandates such as Large Growth or Small Blend, or specialty ones such as High Dividend Yield or ESG (Environmental, Social, and Governance).
For information on how Turing can assist your firm in designing and launching your own custom EAM portfolio, please contact us.
Why is Turing convinced that EAM Portfolios are the means for active management to reclaim its long-lost performance crown over index funds and ETFs? Because of access to impactful, actionable data, the willingness to follow the data wherever it might lead, and results.
New research from Turing confirms that there are two problems for the active investment industry. First, while active managers can create significant value from stock selection, it is limited to their Best Ideas and Biggest Bets versus their benchmark (also referred to as their High Conviction Overweights). Second, the average fund only allocates 55% of its portfolio to their Best Ideas, their sole source of stock selection alpha. Before fees.
Turing discovered how to build EAM Portfolios with 100% of the portfolio dedicated to High Conviction Overweight positions, and then used its expertise in AI and Machine Learning to devise a means to further enhance performance. The solution is based on a multi-expert approach, and powered by the Hercules Database.
And at the risk of oversimplifying, taking the sole alpha contributor of a portfolio from 55% to 100% is just the right way to build portfolios. Turing has now filed multiple patents related to the construction and delivery of EAM solutions.
For a copy of our latest presentation which provides a more detailed background on how and why EAM Portfolios are uniquely positioned for success, please contact us.
1 The identification of these structural flaws, which has also been referred to as a 'genetic defect' for active portfolios, was one of the earliest findings of research once the Hercules Database reached critical size.
When virtually any investor is asked how they define the term "risk management", they invariably reply "don't lose my money." This is a totally reasonable request, but for investments exposed to normal market dynamics, remarkably difficult to deliver in practice.
However, Turing has developed technology that can provide a path forward.
It is increasingly recognized that the market is not monolithic, but rather has multiple 'phases' where return and risk behaviors structurally change. Specifically:
Standard Risk Regimes: 'Healthy' and reward buy-and-hold investors2.
- Positive events and returns are the expected norm.
- Expected annualized returns of approximately 10%, with minimized drawdown events.
High Risk Regimes: Penalize buy-and-hold investors2.
- Losses are the expected norm, and this Regime is the sole domain of disastrous events.
- Expected returns are negative, and maximum losses are 2-times that from Standard Risk Regimes).
Transitional Risk Regimes: Unstable risk-reward environment2.
- Still rewards buy-and-hold investors.
- Has potential to quickly shift to High Risk Regime, thus creating higher uncertainty and potential for loss.
A two-phase market is analogous to a liquid phase transitioning to a gas phase as heat increases:
The challenge is being able to detect the volatility regime changes on a real-time basis in order to inform a thoughtful investment policy. Turing has developed just such a technology.
Turing's RegimeID™ technology is able to detect, on a real‐time basis, transitions between Risk Regimes, enabling actionable decision‐making. The objective of the decision‐making is NOT to time the market nor capture near‐term market moves. Instead, the objective is to create a rationale and statistically‐based investment approach emphasizing market exposure when the markets reward capital investment (Standard or Benign Risk Regimes) while avoiding capital exposure when the markets penalize such exposure (High Risk Regimes).
Turing has built a full set of interlocking technologies that build on the insights of the RegimeID technology to enable a full downside protection investment strategy.
For information on how Turing can assist your firm in designing and launching your own custom DVM portfolio, please contact us.
2 Based on Turing research.
Turing has published papers that demonstrate that 1) Managers' High Conviction Best Ideas are, on average, the sole source manager stock selection alpha, and 2) High Conviction Best Ideas receive only 55% of the average manager's portfolio allocation.
As might be expected, our research also shows that for active managers whose High Conviction Overweight positions add alpha, the higher the percent of the fund allocated to those Best Ideas, the higher the delivered returns to the fund's investors.
The chart shown here is drawn from our recent research paper. It takes the 40% of the funds with the best performing High Conviction Overweights (HCOs), and then sorts the funds based on the percent of the fund allocated to the HCOs. As seen, the higher the HCO percent allocation, the better the fund's overall returns.
After receiving a number of requests for access to this data, Turing has decided to begin selectively making this critical fund evaluation information available to the marketplace. Full plans for the effort are in development and we anticipate an announcement in the near future. In the meantime, to discuss accessing this 'DNA' level data on actively managed funds, please contact us.