Our active management approach is supported by the belief that better information leads to better investment performance — more gains, fewer losses, or combination of two. A recent academic study of “informed participants” agrees —The authors found that larger investors tend to make more productive decisions about individual investments. Not always, but often. There was no suggestion that this reflected access to non-public information, only that the deeper research / harder work of the larger players often led to better performance. That’s what we all would like to believe.
Keller Partners also monitors the actions of informed participants, but we take a different approach. Using technical data series (i.e., data generated directly by the securities markets), we analyze the statistical behavior of individual securities in an attempt to track the movements of these sophisticated market participants. This is a more direct approach and it eliminates the time lags involved in examining the quarterly 13(F) filings of larger institutional investors, the process that was described in the recent study of informed participants by Wu and Xu[1].
We fully agree with the professors that significant excess returns (alpha) are possible by following the lead of larger investors. Given the significant differences in our methodologies, we would expect our day-to-day conclusions to differ significantly, however. The Keller Partners technical process attempts to monitor the behavior of these informed investor behavior as it’s happening — in real time, while the academic approach required a reporting and compilation lag of at least several weeks.
Both approaches, however, seek to improve the timing of buy/sell decisions for individual securities. The following charts illustrate buy/sell signals issued by our technical factor engine for two of the global large-cap securities we monitor —
[1] Wu, Yangru and Xu, Weike, Changes in Ownership Breadth and Capital Market Anomalies (May 22, 2021).
Journal of Portfolio Management. Forthcoming.
Available at SSRN: https://ssrn.com/abstract=2988428 or http://dx.doi.org/10.2139/ssrn.2988428
