Omam quant warns of market dangers
Quant manager identifies negative signals in top-performing market neutral fund.
Old Mutual Asset Managers’ (Omam) Ian Heslop has said his quantitative investment system is now indicating market danger ahead, following months of mixed signals.
Following a shift back to what the manager describes as a “pro-value” focus, he has seen signals leading him more towards defensive stocks again.
However, Mr Heslop emphasised any moves would happen over a number of weeks as he and his team looked to confirm whether the signals were correct.
“No matter what happens we will reflect that and make changes as the situation becomes apparent,” the manager added.
The system manages a range of five Omam quant funds – four of which delivered a top-quartile return in 2011.
The system was overhauled three years ago, as markets capitulated to the initial stages of the global financial crisis, to factor in macroeconomic drivers of share prices more actively.
Mr Heslop said: “In 2011 we went from a pro-cyclical environment to a defensive one, but strategists were still talking about being constructive on equity markets.
“We noticed investors were not actually acting on this, which meant we went defensive earlier than many other managers.”
This shift to a defensive focus led his £31.1m Global Equity Absolute Return fund to post a sector-leading return of 11.7 per cent while other Absolute Return sector funds struggled in the market volatility of the second half of the year.
“Since March  it has not necessarily been obvious which way the markets are going,” Mr Heslop said.
As well as the Old Mutual Global Equity Absolute Return fund, the £10.9m Global Equity, £17.9m Japanese Select and £65.4m North American Equity funds all posted top quartile compared with their respective IMA sectors in the past year.
Only Mr Heslop’s £29.2m Asian Select fund struggled, losing 19.8 per cent during 2011 compared with 16.8 per cent for its IMA Asia Pacific excluding Japan sector. However, it has bounced back over the first half of 2012 to June 18, gaining 8.7 per cent – the third best in the peer group.