Systematic or discretionary investment? Combine the two

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Uncertain markets: Systematic investment strategies have their place

Especially in times of crisis, investors fall into patterns of behavior, that can result in losses. Systematic investment strategies provide a scientific response to this challenge. They show the way to the future for multi-asset investments.

But what track record do systematic strategies actually bring in practice? And what are the limits of these approaches, e.g. in terms of the crisis in spring 2020?

The view of independent experts: A comparison of systematic and discretionary approaches

A study conducted by independent ratings agency Scope last year, which looked at systematic and discretionary investment strategies, is a useful tool in answering this question (if interested, you can receive the full study from your local point of contact). Systematic approaches are based on regulated models, often run by computer algorithms, while discretionary approaches rely on the skills of individual “star” portfolio managers or teams.

The study lists several advantages of systematic strategies, including lower costs, improved transparency for investors, lower specific individual security risks thanks to wider portfolio diversification and high discipline. This makes it more likely that past investment success can also be repeated in the future. Two results come to the forefront here:

  1. Performance characteristics: The study concludes that active systematic strategies are lower risk than discretionary strategies and are less sensitive to the broad market environment.
  2. Correlation characteristics: The historical correlation of outperformance between systematic and discretionary strategies is low.

As summarized in chart 1, the authors of the Scope study find that quantitative investment approaches offer better portfolio diversification and more solid risk management over the entire market cycle. Accordingly, they complement discretionary investment approaches.

Our systematic solution: Vontobel Fund II – Vescore Active Beta

At Vescore, we are pioneers in the area of systematic investing and have been putting our convictions into practice in a way that is transparent for everyone involved since 2002. Investing in our strategy takes the form of the Active Beta fund , which invests in global equities and government bonds with the goal of participating in growing markets and, in the long-term, achieving steady growth in value with a balanced risk profile.

The fund's systematic approach works on the basis of two established, proprietary models – one for equities and one for bonds. These models assess the fundamental environment and return potential in the medium term on an ongoing basis and make corresponding investment decisions without being distorted by emotions with systematic risk monitoring ensured at all times.

Security, flexibility and cost-efficiency are our top priorities when implementing this, which is why we use liquid index products at lower transaction costs than for direct investments when putting our active strategy into practice.

Uncertain markets: Systematic investment strategies have their place

The benefits of discretionary approaches are especially clear in inefficient markets. There, it should be possible to achieve outperformance – depending, of course, on the skills of the portfolio manager. It is subject to this condition that we should look at the various strategies employed in the latest crisis in spring 2020. In the short term, a systematic approach may not have correctly anticipated the structural change caused by the COVID-19 pandemic – even the Active Beta models did not initially react to the falling prices as regime changes must first be apparent from the data. Nevertheless, the long-term track record (see chart 2) suggests that model decisions should not be discretionarily overridden.


This makes the Active Beta fund a good representative of systematic strategies, which can be combined with a portfolio of discretionary investment strategies. This kind of blend, as included in the Scope study results, therefore seems the best way of establishing a stable investment portfolio with good returns. Inflows in recent years also suggest this.