The Wedge Model Series
CIMalgo Wedge Model Series – the Next Generation Global Smart Beta – are quantitative equity investing instruments, coherently designed by concept and context, in order to:
- Capture the utility from holding outperforming World equity portfolio models with a specific competitive Edge – a unique risk profile and trading concept
- Combine worldwide diversification and high liquidity for all Wedge Models
- Enable sustained Alpha at low Betas, by tracking Wedge Models at competitive costs
The model analytics applied in the Wedge Models are based on the probabilities to accurately compare worldwide Top-2.000 USD market-cap equities price-value relations over time, including to accurately compare the covariation of these equities in more defined, segmented, population contexts.
Due to their different focus, Wedge Models have individual objectives, including benchmarks and financial performance targets, but all Wedge Models can be introduced as indexes – at the will of each client. The Wedge Models can all be applied as portfolios for equity funds and ETF’s, as well as to form the basis for structured products, certificates and other derivatives. In addition, the Wedge Models can serve as a portfolio foundation for discretionary asset management services.
All Wedge Models are exclusively developed and licensed by CIMalgo AB – for professional clients only. The business objective for CIMalgo is that all Wedge Models can be tracked at competitive costs, both in terms of fees and execution costs. For the purpose of international trading, as per Wedge Model reallocations, CIMalgo cooperates with a selected number of leading banks.
The Wedge Models Key Benefits to Users
CIMalgo Wedge Models prime objective is to outperform the leading global indexes, in terms of risk-adjusted returns and other specific targets by individual Wedge Model. 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
- Worldwide market exposures and diversification
- 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 Wedge Models can serve as an important and effective benchmark for active own or outsourced fund- or asset management.
The World Market Context
The important common denominator of all Wedge Models is that they share context. The conceptual Edge of each model is tested and confirmed in the unique worldwide context of the world’s top 2.000 BlueChip equites – the equities with the greatest USD market capitalizations in the world – ranked at year end.
The Top-2.000 worldwide context has no bias, not by country market and nor by sector. The context is neutral, it only serve to maximize the objectives of each model – nothing else. Market- and sector-mixes are dynamic, but only due to the Wedge Models themselves. Any preferred biases or other basic conditions for the Wedge Model context, are still possible to provide, as a customized model service, for individual clients.
The 2018 country markets with equities included in the Wedge Model context are:
Asia & Pacific
Wedge Model Designs
The Wedge Models seek to exploit our patented and algorithm-based methodology with proprietary optimization and machine learning techniques. Backed by extensive empirical testing, the Wedge Models consistently outperform benchmarks long-term and show significant and sustained Alpha performance when tested.
The CIMalgo Wedge Models both have common denominators and differentiated characteristics in terms of concepts and contexts, including, but not limited to:
- Common Denominators
- Worldwide Market and Sector Exposures
- Population: Top 2.000 USD Market Capitalization Equities
- Currency Exposure: USD
- Differentiated Characteristics
- Financial Objectives
- Benchmarks and Targets
- Model Focus and Factor Exposure
- Equity Selection Rules
- Allocation Rules
CIMalgo Wedge 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 Wedge 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. CIMalgo Wedge Models are designed without bias, only by rules-based algorithms – to capture specific exposures for a unique model.
Wedge Model: Investment Strategies
The investment strategies of CIMalgo Wedge Models is, first of all, to exclude non-performing equities from the total universe of Top – 2.000 equities. Then, the included population of equities for a model, as it exists at a certain time of reallocation, is ranked and/or optimized by the model-defined algorithms, key ratios or indicators – 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 Wedge Model investment strategies are based on the following consistent model dynamics:
- Reduce the worldwide universe of Top – 2.000 equities to a selected model population, by excluding non-performers (such as listed time-, size- or liquidity screens)
- Rank and/or optimize performers by model 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 Wedge 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.
Wedge Model Policy
CIMalgo Wedge 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 CIMalgo Wedge Models are formed based on a unique segmentation of concept and context, leading to its own policy Ground Rules.
In addition to each Wedge Models Ground Rules, CIMalgo has established a common Wedge 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 Wedge 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 Standard 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 Standard 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 Wedge Model Administration and staff. The product output is solely based upon the methodologies applied and coded algorithms used in the Wedge Model.
Pro Rata Allocations
CIMalgo Wedge 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 CIMalgo Wedge 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 Wedge Models, though, is that all listed companies at all world Stock-Exchanges can be part of the top 2.000 market capitalization population. Domicile is never an issue in Wedge Models.
CIMalgo Wedge 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 Wedge 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.
Wedge Models Launch Plan
Our launch plan for 2019 includes four new Wedge Models. If you are interested in receiving more information about these developments please contact us.
Q4 2018, the first Wedge Model, R100, was launched and in the near future R100 will be embedded in financial products by several leading international banks. In addition, it is planned to launch R100 as an index, managed by a leading international index provider.