- Macquarie Bank’s quant team has picked Best Solution, Avilius, and Marmelo in its annual picks, applying various high-end stock-picking techniques.
- The strategy hasn’t worked for years. But they have some changes in the model for 2018.
Macquarie’s resident brainiacs in quant analysis are out with their annual picks for the Melbourne Cup.
This has been a disastrously bad trade over the past couple of years, but the Macquarie team is getting current, noting the volatility in markets lately and giving this a nod in the commentary even though it’s a race between horses and not stocks.
October was a volatile month for investors with large caps and defensives the best performing segments of the market. With US midterm elections also overlapping this year’s Melbourne Cup there is little chance volatility will subside.
With this in mind we favour the lower risk, shorter priced runners in 2018. Just like investors look for management who have navigated difficult markets before, we also thought it prudent to favour horses that have performed in conditions similar to those on race day. We look for horses that have competed over the distance and had a recent win in Australia. Weather looks like it may also play a role and we appropriately include a metric here.
Before they get unto the actual rankings for all the horses, they explain:
Quant factors are the building blocks of quant ‘styles’, and styles are combined into models. For example, our Macquarie Alpha Model has over 120 factors that are grouped into 10 styles which are then weighted to form a single model rank.
Thumbs up emoji.
They explain the approach:
For the Melbourne Cup … using the 5 most important quant styles:
1. Value – cheapness, what you get for the price
2. Momentum – what is working, what is getting better?
3. Sentiment – what everyone is looking for right now, what people like
4. Quality – what is the best, the most reliable?
5. Innovative Data – what other data sources gives us an information edge
And here’s the breakdown: