Thomson Reuters has introduced a model that can determine which stocks are likely to be bought and sold from a fund manager’s portfolio.
StarMine’s Smart Holdings model attempts to forecast institutional investors’ future buying and selling behavior by identifying which companies would become increasingly or less attractive to these investors over the following quarter. The product combines several different Thomson Reuters content sets including ownership data, corporate financial data and a proprietary, predictive measure of analyst revisions, dubbed SmartEstimates, to gauge how well a company is aligned with the current preferences of institutional investors.
The model is based on the premise that fund managers lean toward buying companies with particular fundamental characteristics such as price-to-earnings, estimate revisions or price momentum. It determines which of 25 widely followed factors are currently important to a given fund owner, and with what relative importance, to create a purchasing profile for each fund.
This profile is then applied against 40,000 stocks globally to determine which of them may be appealing to a given fund. Results are then aggregated across funds to provide a gauge of a stock’s attractiveness to the current market preferences. The result is a predictive model that ranks stocks on future increases or decreases in institutional ownership, indicating which stocks will become increasingly or less desirable to investors.
“The main driver in our research was to determine what funds are likely to do next, rather than reacting to what they have just done,” said Dr. Stephen Malinak, global head of intelligent analytics at Thomson Reuters. “The basic idea is that we have reverse-engineered fund managers’ stock selection processes to predict what changes they are likely to make in their portfolios based on a comparison of individual stocks to the fundamental characteristics they appear to care most about,” he added.
Mary Ann Tasoulas writes for Money Management Executive.