Vinva Systematic Equity Investing Quarterly Update

Morry Waked, Managing Director and Head of Investments, and Steve Malin, Lead Portfolio Manager from Vinva Investment Management, discuss their unique systematic investment approach and share insights on how their funds have navigated the recent market turbulence. They emphasise the nuances between long-only and long/short investing, showcasing how these strategies can uncover unique market opportunities and drive performance, even amidst volatility.

[00:00:37] Can you explain what Systematic Investing is?

Systematic investing involves using technology to efficiently process a wide range of global information and incorporate it into portfolios in an unemotional, systematic manner. This approach combines fundamental and technical insights, along with global linkage models to understand the interconnectedness of companies worldwide. When we combine all these elements into a single investment process to create portfolios for our clients, we refer to it as style neutral. If we can deliver 2-4% alpha above the equity risk premium over time, that translates into an enormous amount of accumulated wealth for our clients.

[00:01:36] Given the recent market volatility driven by the well-publicised Trump tariffs, could you share your observations and insights on what you saw in the markets over the last 12 to 18 months?

The market in 2024 was strong and tech-led, starting 2025 on a positive note with a stable economic landscape and controlled inflation. However, early signs of trouble appeared with the on-again, off-again tariffs involving Canada and Mexico, and the impact of the Chinese DeepSeek model on US tech stocks. February brought a lackluster reporting season in both the US and Australia, leading to a more bearish outlook, particularly concerning China and the Trump tariffs. By March, the focus was entirely on these tariffs, resulting in a difficult month for markets, with elevated volatility continuing into April.

[00:03:26] How have the long-only funds and long-short funds, globally and domestically, performed and what can investors expect from those?

Our alpha extension and Long-only funds, known as Beta-1 strategies, are fully invested in equity markets, reflecting our belief that time in the market outperforms market timing. Over the past few months, both strategies have performed well in terms of total return and active outperformance, driven by stock selection within countries and industries, rather than a particular style or bias.

Despite economic uncertainties, including inflation and the impact of Trump tariffs, our funds have remained resilient. While market sell-offs have affected total returns, our style-neutral approach has ensured consistent performance relative to the benchmark. Notably, our Alpha Extension funds have outperformed the broader market by over 2% this quarter, benefiting from the ability to short sell.

[00:05:25] Can you talk about the differences between alpha extension, and long-only, and what you're trying to achieve with both of those strategies?

The alpha extension strategy differs from the long-only strategy by introducing shorting, allowing for higher tracking error and active risk. This approach lets us forecast underperformance and short stocks directly, enhancing alpha. For example, with Albemarle, a small lithium company, we could only create a minor underweight position in the long-only portfolio or not hold it. However, in the alpha extension, we established a modest short position, benefiting from our accurate forecast of the stock's underperformance. This strategy helps us manage risk while capturing additional alpha.

[00:07:07] What key messages would you like to share with investors as we look ahead to the future market conditions and what they can expect?

Making big market calls right now is risky due to the likely period of elevated volatility ahead. Our funds are structured to be neutral across countries and sectors, providing a benchmark-like risk profile with opportunities to add alpha where possible. This approach is well-suited for navigating uncertain markets.

Equity markets dislike uncertainty, and current volatility is expected to persist. However, things can change quickly, such as if the US and China reach an agreement on tariffs. Predicting market movements is challenging, so we focus on the numbers rather than speculative stories. Elevated uncertainty and volatility are likely to continue in the near term.

Access recent podcast: From noise to signals: Vinva’s unique approach to systematic investing