Investment Management

Numeric Investors

By: Section B, Group 14 Madhur Agrawal (11P146) Mayank Agrawal (11P148) Piyush Rathi (11P159) Tejas Sharma (11P173)

Q1 - Discuss Numeric's investment strategy? What is its rationale for Numeric? Ans. Numeric managed tax-exempt accounts for pension funds and endowments and funds of funds taxable accounts. Firm managed different funds across seven product categories. Five of the product categories involved long-only strategies whereas rest two categories involved long/short strategies. Long/Short involved holding a portfolio of long positions with a portfolio in short positions. The strategy used is “double alpha” in which both winners and losers are predicted. The advantage in this was that it was able to give higher returns as it used both positive and negative information in the market to its advantage. Numeric’s investment strategies were: 1. Long only - strategy where products are: a. Core Aggressive b. Small Cap growth c. Midcap aggressive d. Microcap e. Value aggressive 2. Long / Short strategy without equitization 3. Long / Short strategy with equitization – having long/short market neutral portfolio with equal dollar value of stock index futures The bottom-up selection was done on the basis indigenously build stock selection models. The focusing was more on getting performance fees rather than fixed component. Due to this, Numeric only invested fixed amount in a particular strategy which it can profitably invest. Because of the confidence in its investment models, Numeric mostly depended upon word of mouth rather than Marketing. Q2 - What is the difference between long only and long/short strategies? Do they involve the same level of risk? Ans. Long only Profitable only if share prices of owned securities increase Use only positive information Tend to bundle diversification along with stock selection Long/Short