'Tenaris is a quality stock with attractive valuations'
"The other companies we focus on are Bnp Paribas, Tesco and Gea Group."
by Isabella Della Valle
Key points
Jeffrey D. Morrison Head of Investments at Mfs Investments Management explains how quantitative analysis is useful in managing portfolios even in uncertain and volatile market phases.
How can quantitative models be efficient given the unpredictable situations that have been occurring in the markets for years now?
We have developed a process that avoids relying on a single performance factor. In practice, our process is designed to maintain positive exposure to several quantitative factors: value, momentum, quality and sentiment, while controlling systematic risks such as market beta and sector exposures. The objective is to generate results through stock selection (alpha) rather than being exposed to the fluctuations of a single macroeconomic environment. Equally significant is that our quantitative models do not operate separately. Quantitative and fundamental research have complementary strengths: models offer a systematic and objective reading of fundamentals and valuations, while fundamental analysis provides a more qualitative and forward-looking assessment. We believe that the most promising opportunities lie precisely at this 'intersection': stocks that receive a buy rating from both our quantitative models and fundamental analysis.
What is the value of fundamental analysis in stock selection?
Fundamental analysis is essential because it brings a qualitative and future-oriented perspective that quantitative models alone cannot provide. It provides a deeper insight into corporate quality, competitive dynamics, management effectiveness and earnings sustainability.
How do you manage volatility?
We believe that the best way to manage volatility is through diversification. Our portfolio construction process is designed to ensure that risk is primarily determined by security selection and not by large sector, geographic or stylistic positions. In the construction phase, we explicitly control systematic exposures, such as countries and sectors, and keep sector and individual security weights generally within +/-2% of the benchmark. We apply limits to position sizes and diversify holdings so that no single security can predominantly influence results.
