Joseph Byrum Two-Time Drexel LeBow Analytics 50 Recipient

Published at Drexel LeBow University 2019 and 2021

Business Challenge

Investors seek out opportunities that provide improved returns, with a better risk profile, at a lower cost. In recent years, investors have gravitated towards passive equity index management due to growing dissatisfaction with the results of traditional active equity strategies. All forms of passive index management focus on delivering portfolio results that closely match those of the reference index. Full replication involves holding every individual security that comprises the benchmark in direct proportion to its constituent weight in the reference index. As such, all industry, sector, country, regional, currency and risk factor exposures are also directly proportional to the reference index. Alternative quantitative and analytical approaches offer investors another option that provides excess return potential while remaining cognizant of incremental portfolio expense, while also providing other important client needs.

Analytics Solution

To most effectively harvest these risk premia, we have developed a dynamic and systematic framework which identifies the following: (a) Where: Risk premia perform differently across equity market segments. Therefore, one must understand regional and sector nuances to know where the risk premia are most exploitable; (b) When: Risk premium performance varies significantly across time, so one must understand the right time to invest in a given risk premium; and (c) How: To most effectively capture the desired risk premia, one must understand what stocks best gain exposure to the desired risk premia and how to most efficiently and effectively construct a portfolio to achieve the desired return pattern.

Impact

Principal Global Equities’ key competitive distinction is the integration of analytics, data, and subject matter expertise on a truly global scale. It extends beyond the quantitative investment expertise. It reflects the seamless alignment of cutting-edge analytical techniques, data, and subject matter expertise into a research engine into a complementary research engine applied across equity markets and sectors worldwide, among companies large and small.

Business Challenge

As interest rates have decreased, fixed income investors seek out opportunities that provide improved returns, with a better risk profile, at a lower cost. In recent years, investors have gravitated towards passive index management due to growing dissatisfaction with the results of traditional active fixed income strategies. All forms of passive index management focus on delivering portfolio results that closely match those of the reference index.

Analytics Solution

Analytics has completely transformed our internal fundamental and quantitative investment methodologies that have resulted in products with both unique investment characteristics and performance. A new generation of analytics was deployed to understand that no risk premia delivers in all markets. We have developed analytical techniques that exploit market inefficiencies and deliver long-term outperformance. And because no single risk premium dominates across time, we also take into consideration that risk premia perform differently across segments of global fixed income markets. Further, our methodologies take into account that regional differences drive behavioral biases and investor activity. Accordingly, collective analysis of the regional financial markets, monetary policy and taxation help explain regional differences in risk premia. Moreover, we have developed methodologies that in turn select the best bonds in order to gain exposure to each risk premia. Consequently, we systematically map risk premia exposures to individual bonds with proprietary algorithms.

Impact

Our key competitive distinction is our proprietary unique and differentiated signals that are integrated with subject matter expertise on a truly global scale. It extends beyond the fundamental and quantitative investment expertise. It reflects the seamless alignment of cutting-edge analytical techniques, data, and subject matter expertise into a research engine into a complementary research engine applied across fixed income markets and sectors worldwide, among companies large and small. Clients benefit from our integration.