Analytic’s investment approach is based on the belief that there is no material long-run relationship between risk and return in global equity markets. 

That is, while financial theory has historically suggested that investors taking on higher risk will be rewarded with higher returns, Analytic’s research, both internal and published in highly reputable academic journals, has found that this has seldom been the case.
 
Analytic Investors (Analytic) was formed in 1970 (as Analytic Investment Management) and is based in Los Angeles, USA. Analytic adopts a quantitative approach to both security selection and portfolio construction, which means the firm’s research is aimed at identifying factors that drive the risk and return of a stock from a statistical or quantitative standpoint.

Analytic does not, for example, construct detailed cash flow models for each stock, or perform onsite visits or conduct meetings with company management that a typical fundamental research based investment manager would undertake.
 
Analytic began managing low volatility portfolios in 2004, with the launch of a US Low Volatility strategy, followed by the launch of a Global Low Volatility strategy in 2006. The inception date for the Analytic Global Managed Volatility Fund, as offered by the Macquarie Professional Series, is August 2012.
 
Zenith’s View
Zenith believes the Analytic team is well qualified and experienced to implement the firm’s quantitative investment process. Given the increased visibility of low volatility strategies within Australia over the last 12 months, it may appear that low volatility strategies are a relatively new ‘invention’.

However, Zenith gains significant confidence in Analytic’s successful long-term track record managing quantitative strategies in general, and in particular, in managing low volatility strategies since 2004.
 
Zenith believes Analytic’s quantitative risk and return forecasting models are logical and well researched and tested. Analytic’s determination of risk is achieved by combining two models that factor in both short-term and long-term relationships, and the estimation of return is based on a broad range of factors over varying time horizons. Furthermore, relative factor importance is not set in stone, but dynamically weighted.
 
For quantitative strategies, Zenith regards the level of internal research and development directed towards maintaining and enhancing the efficacy of models and the optimisation process as a critical component of remaining competitive.

Zenith believes Analytic’s forward looking research agenda is clearly directed towards achieving this outcome. While the size of the Analytic research team is small versus quantitative peers, Zenith believes the team is experienced and academically well qualified.

Also, the size and structure of the team has historically been conducive to implementing model and process enhancements in a timely fashion. Harin de Silva, President, and Roger Clarke, Chairman are key individuals within the firm and have both played significant roles in developing the firm’s quantitative strategies, in addition to continuing to do so on a day-to-day basis. 
 
In December 2012, Analytic undertook a management buy-back of the firm from Old Mutual. Zenith views the buy-back and the subsequent distribution of equity as a positive event and one that has provided strong incentives for the retention of key individuals going forward.
 
Zenith rates the Analytic Global Managed Volatility Fund Recommended.

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