The Robust Model Series

Overview

CIMalgo Robust Model Series – the Next Generation Smart Beta – are quantitative equity investing instruments, coherently designed by concept and context, in order to:

• Manage and reduce risks to increase long-term returns
• Capture the utility from holding a Robust Model for a specific stock-market and/or sector
• Focus on significantly outperforming a specific stock-market index for each Robust Model
• Enable sustained Alpha at low Betas, by tracking Robust Models at competitive costs.

The Figure below illustrate the volatility and return clusters of here introduced market and region segmented Robust Models, in relation to their respective MSCI benchmarks. With an 18 years backtested period, the index outperforming returns at the same time as major reductions of risk is very significant.

The Robust Models Key Benefits to Users

CIMalgo Robust Models prime objective is to outperform the leading stock-market index, in terms of risk-adjusted returns. These endeavors also bring other attributes and benefits to users:

• Cost efficient ways to increase Alpha upside
• Higher returns at both lower risk and lower Betas
• Lower maximum and average drawdowns
• Lower fees and charges
• Specific market and/or sector exposures
• No bias, financial objectives only
• Transparent portfolio models
• Limited number of reallocation days and lower tracking costs
• Available complementary equity and equity market analytics

In addition, CIMalgo Robust Models can serve as an important and effective benchmark for active own or outsourced fund- or asset management.

Robust Model Designs

The Robust Models seek to exploit our patented and algorithm-based methodology with proprietary optimization and machine learning techniques. Backed by extensive empirical testing, the Robust Models consistently outperform benchmarks long-term and show significant and sustained Alpha performance when tested.

Learn more: The Robust Model’s Theoretical Foundation »

The CIMalgo Robust Models both have common denominators and differentiated characteristics in terms of concepts and contexts, including, but not limited to:

• Common Denominators for all Robust Models
  • Model Focus and Trading Concept
  • Factor Risk Exposure
  • Model Allocation Rules
  • Equity Selection Rules
  • Financial Objectives
• Differentiated Characteristics by Robust Model
  • Market and Sector Exposure
  • Population and Portfolio Numbers
  • Equity Selection Rules
  • Benchmark
  • Currency Exposure

CIMalgo Robust Models are solely rule-based, with no human interference; the models are only processed outputs from coded algorithms. All models have been through rigorous back-testing routines for the confirmation of significant performance. They are continuously quality assured and are well maintained in terms of delivery services to each client.

CIMalgo Robust Models strictly follows policy and ground rules; making them transparent and predictable. They are designed to be easy-to-track at limited costs for the full range of sell-side banks, brokers and market makers, as well as buy-side investment firms, funds and other financial institutions. All the Robust Models are designed without bias, only by rules-based algorithms – to capture specific exposures for a unique model.

Robust Model: Investment Strategies

The investment strategies of the CIMalgo Robust Models are, first of all, to exclude non-performing equities from the total market and/or sector universe of equities. Then, the included population of equities for a model, as it exists at a certain time of reallocation, is optimized by the Robust Model algorithms – to define the model pro rata constituents. Thirdly, any deviation from the pro rata model is reallocated by trading.

In effect, this mean that the CIMalgo Robust Model investment strategies are based on the following consistent model dynamics:

• Reduce the model universe to a selected model population, by excluding non-performers (such as listed time-, size- or liquidity screens)
• Rank and optimize performers by optimization algorithms, initially and at times of reallocation
• Select and buy the pro rata share for the number of model constituents
• Trade to fit the ranking or optimum constituents, at times of reallocation
• Trade to sustain the pro rata allocation, at times of reallocation

The investment strategies provide a consistent methodology for every CIMalgo Robust Model, enhancing the replicability of models and putting great emphasis on comparisons between models and benchmarks, both in terms of proven long-term track records as well as positions at specific periods of time.

Robust Model Policy

The CIMalgo Robust Models are solely rule-based, with no human interference. The models are only represented by combinations of analytical methods, with standardized and customized algorithms. Each of the Robust Models are formed based on a unique market and sector segmentation and a common model concept and context, leading to its own policy Ground Rules.

In addition to each Robust Models Ground Rules, CIMalgo has established a common Robust Model Policy to serve as guide line for its continuous model development and to ensure transparent communication with potential and existing clients.

Only Public Input Data

The CIMalgo policy is that all corporate, stock and market input data for all Robust Models only comes from the Stock-Exchanges, or via recognized and specified intermediary information vendors and directly or indirectly from the listed corporations financial reports. All of this Robust Model input data is public information, fully available to the market, and shall never be altered by any CIMalgo staff, for any reason.

Only Method-based Output

The CIMalgo Robust Model outputs in terms of equity portfolios, with selection and reallocation of constituents, is singularly quantitative and automatic. The policy is that models never are changed or altered in any way by CIMalgo’s Robust Model Administration and staff. The product output is solely based upon the methodologies applied and coded algorithms used in the Robust Models.

Pro Rata Allocations

The CIMalgo Robust Models are never capitalized representations of domestic markets or international sets of Stock-Exchange marketplaces. For CIMalgo, markets are never objectively universal, but always subjectively segmented and, most importantly, defined markets are only conditional exposures to reach financial objectives.

The start-up allocation and reallocation policy of the CIMalgo Robust Models is the pro rata principle of equal share for all selected model-constituents, within by concept defined portfolios and within by context defined markets.

Universes and Benchmarks

Company domicile is a critical component for defining the universes of all CIMalgo models. The policy for Robust Models, though, is that all listed companies at the respective Stock-Exchanges is included in the universes and benchmarks. Domicile is never an issue in Robust Models.

CIMalgo Robust Models strive to minimize the number of policy deviations against their defined benchmarks, which always is a leading global market capitalization allocated Beta-index. Hereby, the key sources of Alpha is more specified and transparent for the user of the Robust Model. The policy is to have the same number of stocks in the selected model portfolio as the benchmark. Moreover, the policy is to use the same dates and number of days per year for reallocation as the benchmark.