Alternative Investment

Now is the time for nowcasting

B. G., Opalesque Geneva:

The world faces a challenging period, harassed as it is by inflation and potential economic stagnation. This is an especially good time to properly evaluate the state of the economy in real-time, so as to better safeguard investment returns and assess potential risks more effectively. But official economic numbers are laggards. This is where nowcasting, the finger-on-the-pulse forecasting method, comes in to save the day.

Nowcasting is the prediction of the present, the very near future, and the very recent past state of an economic indicator. The term, which comes from meteorology, has recently become popular in economics since typical measures used to assess the state of an economy (e.g. GDP) are only determined after a long delay and subject to revision.

A FinTech company in Paris called QuantCube is all about nowcasting. Its technology analyses billions of alternative data in real-time.

“The datasets we analyse include satellite imagery, text from news and social media, and geolocation data,” CEO Thanh-Long Huynh tells Opalesque. “Leveraging our proprietary AI algorithms, we draw macro signals from these alternative data sources and have developed various macroeconomic indicators for financial applications. Our indicators monitor key macroeconomic metrics such as GDP, inflation and commodity intelligence, and are widely used by market practitioners to assess global macroeconomic conditions.”

At the Alternative Data webinar on October 20, Thanh-Long Huynh will discuss case studies, including the US mid-term election, assessing macroeconomic regime with real-time macro analysis, and looking at commodity markets through the lens of alternative data.

Recognising macroeconomic regimes

Identifying current macroeconomic regimes can help to determine the optimal timing for changing asset allocation, equity sector rotation, and/or credit rotation.

Traditionally, investment managers have relied on official economic indicators published by central banks or statistical institutions. However, these typically have a time lag and therefore do not provide a reliable representation of the current macro-conditions.

“Using our CPI Nowcast and GDP Leading Nowcast, we developed the QuantCube Quadrant Analysis to identify four macro regimes in the investment cycle and to systematically track changes in real-time,” says Thanh-Long Huynh.

These four macro regimes are:
– Slow Growth: falling inflation and slowing growth
– Goldilocks: falling inflation and rising growth
– Stagflation: rising inflation and slowing growth
– Heating Up: rising inflation and rising growth

“This tool is designed to provide early insights into short-term macro regime shifts and to help users to optimise their investment strategies,” he continues. “Our research indicates that historically, certain asset classes perform better during specific macro regimes. Switching out of unfavourable assets and re-allocating funds into more favourable ones at the optimum time can provide a valuable edge in investment performance.”

Managers can also use the tool for index creation, multi-asset strategies, fixed income strategies and trading strategies.

An equity sector allocation strategy

Here is the performance of an equity sector allocation strategy based on the QuantCube Quadrant Analysis. Depending on the real-time macro regime estimation, the strategy invests in an equally weighted basket of high conviction equity sectors that have been selected based on both qualitative and quantitative studies.

The strategy generated significant excess returns compared to the MSCI US Equal Weight Index over the last quarter. It positioned its holdings for inflationary regimes (i.e. Stagflation and Heating Up) during the early summer, before taking advantage of the temporary drop in inflationary pressure and adjusting the exposure to the Goldilocks regime. Furthermore, brief shifts to the Slow Growth regime during this period allowed the portfolio to avoid substantial losses.

Founded in 2013, QuantCube Technology is a FinTech company based in Paris, France, that specialises in macroeconomic nowcasting using AI and Big Data. It provides financial institutions global macro smart data through QuantCube MIP, its macroeconomic nowcasting platform.

The two co-founders are Thanh-Long Huynh, CEO, and Ghizlaine Amrani, COO. Thanh-Long Huynh was previously a president at HTL Capital, a hedge fund that specialises in systematic investment and macro strategy. Ghizlaine Amrani is a trained psychotherapist and an expert in identifying sentiment data and its use cases in data analytics.


Next SkillsLab Webinar:

Join this Opalesque webinar with case studies, live data and intelligence from Quant Cube

Speaker: Thanh-Long Huynh, CEO, QuantCube

When: Thursday, October 20, at 11 am EDT (5 pm CEST, 4 pm BST, 11 pm HKT)

Free registration: www.opalesque.com/webinar/

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