Investment Research Offsite 2024 Recap

Introduction

In September, investment colleagues from around the world met in Boston to discuss investment trends and showcase their latest research. It was also a welcome opportunity for researchers, portfolio managers, and strategists across different asset classes and investment styles to connect with each other. Sessions were held on a variety topics in four key categories:

1. Investment Insights Around Key Global Themes
2. Institutional and Intermediary Industry Insights
3. Cutting Edge Research Tools and Models
4. Investment Strategy Development

The two-day event was grounded in our belief that to be a successful investment manager today requires broader insights and expertise across a wide range of subjects. The quality of the research underscored the importance of intellectual rigor in an increasingly complex and dynamic world. Moreover, the various opportunities to connect in a more social setting developed new, and cemented existing working relationships amongst our global peer.

Investment Insights Around Key Global Themes

We started with sessions around the current macroeconomic environment and key structural changes we are seeing globally. With the world economy still adjusting to a post-COVID reality, various conflicts (Russia-Ukraine, Middle East, China-US tensions), and a myriad of elections have resulted in heightened uncertainty. It has been a busy year for our economists and policy experts who highlighted the importance of being diligent in how we read and interpret the data. Research was presented on how to categorize macroeconomic regimes when no two regimes are ever exactly alike and linear models do not capture the story.

Next, our researchers discussed the implications of geopolitics in financial markets, highlighting their importance only when it comes to long-term drivers of structural macro trends. Clear transmission channels to assets are critical, which are generally easier to establish in foreign exchange markets as opposed to regional equity and bond markets.

Institutional and Intermediary Industry Insights

Each of the two days began with insights from our Client Coverage Group leadership on key trends and developments impacting their business. Within the institutional space, consolidation remains a key driver; both at the asset owner and OCIO side, but also in their desire to have fewer service providers. The rise of systematic fixed income (at the expense of active) as well as private credit, and a adopting a barbell approach to portfolio construction were key themes. We also spoke about ETF trends in the US and in Europe, the Middle East, and Africa (EMEA) (including the increasing popularity of active ETFs and options-based structured products offered in an ETF wrapper), as well as trends in the US Defined Contribution market. This served as an important level-setting exercise. It helped our investment organization remain anchored on the commercial issues impacting the broader business and ensures research and strategy development planning remains broadly aligned with client needs.

Cutting Edge Research Tools and Models

Several sessions focused on transformative technologies, including blockchain and crypto currency, and artificial intelligence (AI) and machine learning (ML). Regarding blockchain and digital currencies, the teams presented their findings on their role in long-horizon versus short-horizon portfolios, and the potential for asset tokenization to allow improved and more efficient access to currently less accessible asset types. Regarding AI and ML, research was presented not only on how the technologies can assist in return generation and forecasting, but also asset allocation, risk analysis, and performance measurement. For example, discussions were had around three categories of use cases: (i) research and prototyping, (ii) general productivity enhancement and automation, and (iii) modeling and prediction.

Investment Strategy Development

Innovations to our investment strategies comprised our third and largest category of presentations. The research and portfolio management teams for Systematic Equity, Fundamental Equity, Active Fixed Income, Multi-Asset Class Investment Solutions, OCIO, and Sustainable Investing held a number of discussions on innovation and presented their latest research. Select topics included:

• Developments in our multi-asset tactical models including a revised Market Regime Indicator and enhancements to the Commodities, Equity, and Fixed Income Sector Rotation models.
• A new framework for strategic asset allocation with alternative investments such as private equity and debt.
• How we are leveraging the blurring boundary between traditional “Alpha” and “Beta” strategies to create more precise investment solutions.
• Innovations in our systematic credit capabilities which have been rapidly advancing in recent years, and expanding to other parts of the credit market.
• Enhancements to our systematic equity strategies.
• New ways of thinking about sectors and industries being explored by our Active Fundamental Research teams.
• How ML can best be utilized in systematic active strategies.
• Portfolio construction research such as advances in transaction cost modeling and turnover management.
• New approaches to Sustainable Investing including “Sustainable Outcome Investing,” which has parallels to impact investing but is more relevant to broad asset classes.
  
• Climate investing research and development in which more and more forward-looking metrics such as implied temperature and climate value at risk (VaR) are being integrated.
• The relationship between sustainability ratings and financial risk and performance, and how sustainable companies react during periods of high inflation.

Looking Ahead

The remainder of 2024 and the start of 2025 promise to remain as dynamic as ever, with uncertainty being an unavoidable part of what it means to be an investor today. We believe that rigorous approaches, whether they are data-driven, judgement-based, or both, need to be research driven. With so much real-time information today, it’s all too easy for investors to get lost in the noise. Setting out beliefs, building models based on those beliefs, and doing the hard work to vet those models are all part of the research process, a practice which is central to how we manage our clients’ assets at State Street Global Advisors.