CMS believes that smaller, newer managers may offer more dynamic, innovative, and adaptive strategies compared to larger, more established ones.
Building the Next Generation of Analysts.
Reasons why smaller managers might
outperform their larger counterparts
Agile and adaptive investment strategies can more quickly react to and adjust to the constantly changing market dynamics in the current trading environment. Returns from established managers tend to correlate to major indices, especially during trending or stressed markets.
More Dynamic and Responsive
Smaller operations are more dynamic and responsive: They can adapt to market changes more quickly.
Unique Perspectives
New strategies offer unique perspectives: Emerging managers often bring fresh ideas that established managers might overlook.
Fewer Liquidity Constraints
Smaller asset strategies have fewer liquidity constraints: They can execute trades more efficiently without the impact of larger amounts of capital moving the market.
Strong Incentive
New programs need to perform to attract assets: Emerging managers have a strong incentive to deliver solid returns quickly to build their reputation.
Fewer Contraints
Fewer restrictions to adapt the strategy to changing markets: They can adjust their strategies with fewer constraints, which helps them take advantage of evolving market conditions.
CMS integrates these emerging strategies into their own model, drawing on these unique insights while ensuring that each trading signal is aligned with their overarching goal of achieving positive, risk-adjusted returns.
Identifying the Manager’s Life-Cycle
A key consideration for CMS is understanding where a trading manager is in their lifecycle. Understanding where the manager is in their lifecycle reflects upon performance, investment expectations, and the implementation of adequate risk controls. The lifecycle of a manager also affects the types of returns they are likely to generate, as the internal developments of an investment manager will impact the trading signals they generate.
CMS focuses on manager skill as the primary driver for generating positive returns and incorporates effective risk controls to guard against market shifts. This emphasis on manager skills instils confidence in the investment process. However, focusing on return data alone will not identify the preferred managers or signals. This is due to the risk of being exposed to shifting market environments created by technical cycles or event-driven factors.
By analyzing factors like operational size, infrastructure, and investment process, CMS can identify managers or strategies that are poised for success. This analysis allows them to select the best managers and signals, while avoiding those who may struggle under shifting market conditions.
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