The brainiacs at the Macquarie equity quant team are out with their annual picks for the Melbourne Cup.
Their tips: Trip to Paris, followed by Fame Game, The United States, The Offer, Criterion, Almoonqith – and there’s a catch with Red Cadeaux. More on that in a moment.
They have a 5 factor model which includes value (cheapness), momentum (how the odds are moving), sentiment (last available odds), quality (winning percentage) and innovative data (form plus the factors we use in our own model such as barrier and so on).
They also usually adjust the model to account for trends in global markets and this year have bumped up the quality factor, explaining:
We add an extra Quality factor to this year’s model tilting towards horses that have a proven track record over the longer distance of the Melbourne Cup. Macro volatility has picked up in the last 6 months as the Chinese market tipped over and investors contemplate the impact of a US interest rate cycle. Proven quality stocks typically win out in volatile environments leading us to increase a tilt to Quality in 2015.
The model then ranks each horse in order on these criteria and the team place a bet on the top horse and box up the top 6 horses into a trifecta.
Here’s the full rankings:
Back to Red Cadeaux, described by the quants as their “bogey horse” after he upset their predictions in 2011 and 2013. Here’s Macquarie:
Red Cadeaux typically has had poor form leading into the race and, at 10 years old, would appear past his prime. This horse however has disrupted our trifecta bets on multiple occasions and cannot be written off. We include him in this year’s trifecta bet (we’ll have 7 horses). Our strategy remains:
- We firstly put an each way bet on Trip to Paris as the top horse in the model.
- And also go for the trifecta using the top 6 horses (plus Red Cadeaux). This best mirrors the way we quants approach equity investing.
In closing the quants admit to “very limited knowledge of horse racing”. And oh, “past performance is no indication of future returns.”