Numeric Investors - Investment Approaches - Assignment Example

Numeric Investors Case Study Name: Instructor: Course: Date: Numeric Investors Case Study Question 1 Numeric Investors is a business that provides various short term and long term services such as equity portfolios using a value model integrated with a momentum model. They include the development of a diversified, quantitative investment platform globally that includes Numeric and AHL exceeding $25 billion funds being managed (Harvard Business School, 1997). The company provides long-short strategies using a high turnover portfolio approach in investing. This entailed holding long position portfolios combined wit short term positions. The long positions bought “good” stocks while short positions entailed selling “bad” stock. Numeric exploits its potential to predict probable losers and winners through a process described as “double alpha” strategy. Additionally, Numeric Investors is dedicated towards the development and process implementation of various quantitative investment approaches focused on the ability for alpha generation in the investment processes. The company’s primary goal is maximizing total dollars of surplus return present in clients' portfolios while also considering a sensible level of risk in the entire processes. In order for Numeric Investors to remain consistent with their objective, they remain committed through allocation of significant resources toward creating an effective investment team coupled with solid research and modeling capacities (Harvard Business School, 1997). The firm conducts research in the various steps of the entire investment process beyond the alpha modeling investment aspect, research is therefore conducted through seeking to reveal the potential new approaches towards creating alpha, build portfolios, manage, trading costs, and assess risk in all the investment operations. Question 2 Exhibit 3 provides a useful tool towards understanding the various characteristics of the stocks included in the different funds in Numeric Investors (Harvard Business School, 1997). This is because it helps in structuring the portfolio in order to deliver long term results that are solid to realize the underlying fundamentals of Numeric’s which are significantly important. The exhibit allows linking of the various ideas necessary towards establishing a solid portfolio. Numeric Investors investment objective is to develop long term capital preservation through the integration of investments in such areas as “money market instruments, government and corporate bonds, equities, bonds convertible into common stock, preferred shares, warrants and other fixed income and equity linked investments”, that may encompass though not limited to such instruments as the stock options or equity swaps, in a well balanced asset allocation intended for inflation adjustments into growth of capital (Harvard Business School, 1997). The Portfolio is also likely to invest substantially in both fixed income and equity securities in the broader investment options. Exhibit 3 also shows how the portfolio seeks to achieve its investment goals by investing mainly in common stock and other equity and equity related securities that include but are not limited to convertible bonds, depository receipts, unleveraged participation notes that are designed to provide a return directly linked to the performance of a particular security, options and swaps that are listed, traded or traded on recognized markets and are related to a global emerging area (Harvard Business School, 1997). The exhibit determines whether a particular security issue relates to a global emerging region, the quantitative investment manager may have regard not only to the principal trading market for the stock or the place or integration of the issuer but also the region of its chief activities and business interests of the clients, revenue and location of its important assets. The portfolio can as well invest the remainder in markets that can be found outside global emerging regions on specific investment options. Question 3 Numeric’s investment process works through portfolio managers, who “buy, sell, sell short, and buy-to-cover decisions” executed by the company’s traders or using electronic trading services for instance Instinet and QuantEx (Harvard Business School, 1997). The business used three traders and five managers for portfolio. The investment process is therefore entails systematic processes which are normally underpinned by a huge fundamental strategy to promote a quantitative process towards efficiency. The company employs research and portfolio teams in management that re full integrated to ensure a set of skills that directly benefit the clients. The success of an investment is determined by a combination of factors that Numeric must put into consideration towards quantitative investment strategies. A successful investment opportunity meets some criteria based on some factors such as understanding the securities investment market within some specified timeframe and quantitative expectations and forecasts based on facts. Numeric Investors strategy t investment is part of the organizational culture which is analytical, disciplined, and reflective promoting a high standard in terms of transparency and excellence as well as accountable empowerment. Investment decisions are based on important economic rational and facts that ensure persistence in meeting the needs of the clients. The security managers ought to conduct a needs assessment in order to devise appropriate strategies for the various investment platforms (Harvard Business School, 1997). This should be through quantitative investment planning before making implementing to ensure the desired improvements in performance are targeted. This would consequently ensure greater impacts and value to the Numeric Investor. The company should also seek investment processes through the development valid portfolios and through continuous evaluation in order to ensure the benefits of the alpha investment development long term and effective. In addition, the expected outcomes are clearly defined in order to realize the benefits of the projected investment outcomes. Numeric's investment approaches encompasses the long-only, active expansions, and market equities targeting various geographic areas, investment designs, and capitalization categories to varied clients. For the business, added value is achieved through stock selection processes as established by the outcomes of the quantitative Numeric’s investment models, together with the competent portfolio managers' skills and capabilities in stocks and sectors and other investment ventures (Harvard Business School, 1997). At Numeric Investors there is the utilization of a common investment philosophy inherent in stock selection processes in all the various types of approaches to build and grow portfolios which are alpha-oriented over the long-term as well as in the different market environments. The business believes in a balanced and well leveraged approach that uses a combination of evaluation and information flow designs to ensure efficiency. Additionally, there is a common strategy across all Numeric Investors strategies that promote an insight through research to benefit the wide array of Numeric’s investment strategies. Question 4 Numeric’s capacity to effectively manage money requires some strategic improvements to ensure setting of investment objectives for individual investors is based on the assessment of their current and future financial objectives. The required rate of return for investment depends on what sum today can be invested and how much investor needs to have at the end of the investment period (Harvard Business School, 1997). It is important to note that Numeric’s to carry out an accurate assessment of the possible investment opportunities in a rapidly changing global security market environment. Strategic improvements ought to consider wide range of investment opportunities and portfolios that increase the organizations operational platform to meet the clients needs while at the same achieving milestones that promise growth for Numeric’s and its business associates. The capacity to manage money should entail a holistic perspective in all the investment platforms and their target limits to ensure achievement of the core business results (Harvard Business School, 1997). Asset funds are particularly an important consideration that allows forecasting of future estimate revisions based on past changes. Various earnings at Numeric’s are inherently linked to the asset funds committed in the various services and must be well projected to ensure measurable results at all times. Question 5 Numeric’s partners must utilize some recommendations pertaining to the future direction of the firm in order to ensure efficiency and smooth running in delivering the services. The primary secret to deciding on good common stocks investment is that it is through experience but there is no single secret. The winning strategies have been tried and true, but it depends on how one is able to assemble and apply them that bring out the difference. Information about a particular company is therefore key. Being in possession of the right information about a given company and understanding how to interpret it are more significant than any of the other factors one might access for the success of the most promising genius in a given market. Information in investments such as Numeric’s is even more for making partnership decisions important than timing (Harvard Business School, 1997). When an individual or a team finds a company that looks promising, one does not have to engage in venture immediately. This is because, good stocks tend to remain good, and therefore one can take the time to carry out a thorough investigation before you investment decisions are implemented. Any company that is worthy investment should be increasingly concerned about product or service development as well as future competitiveness in a highly dynamic global market place. Partners should therefore compare the Numeric’s spending on its research and development programs both in actual dollars and as a total percentage of income and sales with that of similar or rival firms within the industry of operation. Globalization is also a force that has been felt in business and partners must consider its impact on Numeric Investors, increased transparency and falling information cost (Harvard Business School, 1997). Such considerations provide a clear insight into opportunities for better returns and a reduced risk through careful and improved strategies in partnership investments. Information about Numeric’s financial assets is often available and less costly to gather, compared to information about the company’s physical assets and growth plans. The availability of information shows the real possibility of the partners receiving the required information that could influence or impact on their investment decisions as well as the investment results (Harvard Business School, 1997). Since a considerable amount of information is important for partners or investors based on financial assets as stocks and equities are also publicly available. The impact of numerous revealed factors having potential influence on value of the various securities can be incorporated in the analysis and the decisions made by potential partners. Reference Harvard Business School. Numeric Investors L.P.1997. Read More