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3AI’s flagship Smart Alpha Global Index has consistently outperformed the MSCI World Index by over 10% alpha, year after year. This year, that number increased to 19%. powered by our Deep Factor AI, which covers over 20,000 stocks from all sectors and countries, our capability for producing enhanced indices is unrivalled.
Leveraging 326 factors on every stock to provide a deeper analysis of companies, while solving the look-ahead bias of quantitative index construction, our Alpha Indices are the “Smart Alpha” solution the investment industry has been waiting for.
As the markets evolve, stock pricing has become more efficient, benefiting the passive investor. Traditional factor investing strategies have been designed with passive index outperformance as the objective. Factor investing approaches can overlook key information that is critical to understanding.
For example, understanding whether sales growth is sustainable may require conditional analysis of cashflow and revenue. Hence factor funds that sort stocks using only a handful of observable factors, and do not have the conditional inter-factor understanding, have struggled to beat passive benchmarks.
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Index construction is typically a two-stage process. A model that ranks stocks and an overlaying strategy that utilises the stock ranking to construct portfolio holding weights. Index approaches have traditionally contained look-ahead bias in both processes.
Firstly, the factors that score stocks are selected based on what has worked in the past. Secondly, the portfolio construction is optimised only on what has previously worked. Both processes are hindered with look-ahead bias. This frequently leads to indices underperforming their back-tested expectations.
It typically takes at least 3 months for a quantitative structurer to devise a new index strategy, and despite the workload, they may still struggle to find sustainable Alpha. This results in a gap between demand for new index investment products and the speed at which they can be produced.
Powered by 3AI’s proprietary Deep Factor AI, our market-leading Alpha Indices analyse a larger universe of stocks at greater depth than ever before, to continually find the very best investment opportunities for any given index.
Evaluating 326 factors, encompassing accounting forensics, valuation, sentiment, technical indicators, multi-year financial trend analysis and more, on over 20,000 stocks, our ability to find Alpha is unparalleled.
3AI’s Alpha Indices avoid look-ahead bias by design. Firstly, our proprietary Portfolio Optimisation AI discovers the best expected portfolio holding strategy at each rebalance, using information only available at that time: Namely stock liquidity and our Alpha Insights.
Secondly, our Alpha Insights are powered by our Deep Factor AI, which is trained to only learn from the past and is improving with time. As a result, we only produce one backtest per index and to date have observed more alpha live than historic backtests indicate.
Using a fully autonomous, end-to-end AI index generation process that seeks to source the best of Alpha and overlay strategy, we are able to reliably respond to requests for bespoke Alpha Indices for any region, country, sector, or industry, at unparalleled speed. And with each additional step in automation, this is only going to get faster!
