Risk and Reward Quarterly Update

Systematic investing is a disciplined strategy, founded on explicit rules and principles. Yet, like everything in asset management, it continues to evolve. Advances in computing power and artificial intelligence are driving change in processes and decision making. Quantitative techniques are being integrated into a wide array of strategies. This edition of Risk & Reward delves into these ongoing shifts. 

For example, our colleagues have developed a cutting-edge tool for ESG monitoring that leverages Natural Language Processing (NLP) – a branch of AI that efficiently analyzes text. This tool reveals insights that a human reader might overlook due to biases or time constraints. Built on the premise that financially significant ESG controversies garner substantial media attention, the tool systematically analyzes news reports to identify the issues that really matter.   

Next, we explore a classic theme in factor investing and a key feature of markets today: extreme concentration, particularly in the US, where a handful of tech mega-caps have come to dominate index composition and performance. Do you believe that quantitative strategies can’t adapt to the new normal? With the right tools, style factors can still thrive, even in highly concentrated markets. Discover what our experts have uncovered.

In addition, we feature an in-depth interview with three leading quantitative portfolio managers from Invesco. They share their views on the latest developments in the space and the changes brought about by theoretical advances, increasing computing power, sophisticated algorithms, artificial intelligence, and evolving client preferences.