21 May 2024

Quantitative Investment Strategies (QIS): a powerful diversifying tool for institutional investors

At BBVA CIB we conducted a brief analysis of the BBVA QIS proposal. An innovative product whose objective has always been to provide clients with responsible and transparent investment opportunities, through investable indices and for the various requirements that investors may face, together with Pablo Suárez, Quantitative Investment Strategies Managing Director.

In the last month, there have been over 1.3M public mentions related to Quantitative Investment Strategies (QIS). In our latest LinkedIn Trending Data newsletter, we have cross-referenced this data with more the 300K+ mentions linked to #PortfolioConstruction and more than 400K to #QuantitativeAnalysis, #QuantitativeStrategies, and #IndexStrategies, to bring you a brief analysis on why quantitative Investment strategies are a good opportunity for responsible and transparent investing.

In the current context, Innovation and solutions transparency are essential in order for society to be able to successfully face the challenges it faces.Traditionally investors have been relying into two main asset classes to build their portfolios, Equities and Bonds. The different growth and inflation exposure of those assets has been a very powerful tool to achieve diversification, hence boosting returns and keeping risk stable.

The whole concept from Modern Portfolio Theory relies on the benefits of diversification from different assets, larger with low or negative correlations of their returns. This has been the case in the 2001-2021 period for equities and bonds, since then US equities-bond correlation has shifted from negative to positive challenging this diversification benefit.To contextualize this shift in correlation, one must look back to the 1980s and 1990s, where sustained periods of positive correlations were observed. Nowadays landscape shares some common factors with those pre 2001 decades:

  • Escalating public debt levels
  • Elevated inflation rates
  • Uncertainty surrounding policy rates
  • Models reliant on supply-side factors

This can potentially sustain a period with similar outcome of positive correlation between Equities and Bonds, hence traditional portfolios may suffer from a wider range of risk-adjusted returns and deeper drawdowns.


In the words of and expert

BBVA QIS: Responsible and transparent investment opportunities


The purpose BBVA QIS since inception has always been to bring responsible and transparent investment opportunities to institutional investors through investable indices and for the variety of needs they may face.

BBVA QIS is an innovative Investment Strategies provider that focuses on the design, manufacturing and distribution of rules-based, multi-asset and long-short indices that offers an alternative way of investment solutions that relies on rules-based investment strategies encapsulated in indices, distributed to our clients through a variety of wrappers allowing them to access additional sources of diversified and low correlated returns with the aim of filling the gaps in their investment process.

The purpose BBVA QIS since inception has always been to bring responsible and transparent investment opportunities to institutional investors through investable indices.

One of the tools specially suitable to a scenario where additional risk management from investors is required are Alternative Risk Premia strategies (ARPs), which can be deployed on the full range of asset classes, while also becoming a toolbox for different market and macro regimes. ARPs fills investors four strategic needs:

  • Diversification: Offers diversification to traditional portfolios bringing risks down
  • Liquidity: Are a liquid investment
  • Transparency: They are transparent systematic investments with no fiduciary risk
  • Cost-efficient: They are cost efficient when compared with more expensive alternatives

From BBVA QIS we understand that the usage of QIS and  ARPs in particular will keep growing among investors either looking for a particular solution that fits their expected market environment or portfolio need, or alternatively combining the different ARPs to provide an additional low-correlated overlay to their existing portfolios.

BBVA's approach in building these strategies always aim to combine ARPs with BBVA Global Markets' deep market knowledge to offer a differentiated value proposition for our clients, always taking advantage of the profile and scale of the group. A good example of this relationship is the recent launch of foreign exchange ARPs, where we have deployed a specific Latin American currency offering, backed by our bank's strong track record in the region, a price efficient and a liquid source of risk and return in Latin America.