The rarity, inexplicability and certainty of black swans makes investment portfolios “fragile,” says Giordano.
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LITTLETON, Colo. (PRWEB) May 22, 2019
Gioele Giordano, CFTe, a member of the Italian Society of Technical Analysis and student at the University of Modena and Reggio Emilia at the Department of Economics Marco Biagi, has won the $5,000 NAAIM 2019 Founders Award for Advances in Active Investment Management with his paper, Antifragile Asset Allocation Model.
This is the 10th year the National Association of Active Investment Managers (NAAIM) has sponsored the white paper competition. The Founders Award seeks papers covering an innovative topic in the area of active investing, such as a documented investing approach, an exploration into the validity of active investing, or research in other issues related to active investing such as making investment decisions using technical analysis, quantitative analysis, etc. Papers can also address related topics such as position sizing techniques, money management approaches, scaling into and out of trades, exit strategies, tax harvesting, execution, etc. Criteria used in judging the papers are: practical significance to practitioners of active investing; quality of exposition; analytical rigor; and novelty of results.
In Antifragile Asset Allocation Model, Giordano demonstrated how a combination of an active quantitative investment model and an effective tail risk hedging strategy could immunize a portfolio to black swan events and exploit them to the investor’s advantage. Black swan events are destructive market events that are by definition unpredictable, deemed improbable and explainable only afterwards. The rarity, inexplicability and certainty of black swans makes investment portfolios “fragile,” says Giordano. The antidote is Antifragility, a system that can take advantage of randomness and chaos.
In designing an Antifragile system, Giordano combined a sector rotation quantitative strategy with a tail risk hedging strategy – the Black Swan Hedging Model. His four-part paper addresses (1) the main quantitative factors of the sector rotation mode; (2) how some tail risk hedging models work and how they can be improved through a more adaptive strategy; (3) creation of the Antifragile Asset Allocation Model by merging the models in 1 and 2, and (4) results of model backtesting utilizing monthly performances from June 2004 to February 2019.
A ranking algorithm consisting of quantitative factors such as Momentum, Correlation, Volatility and Trend selects the best assets over time for the Sector Rotation Model and the Black Swan Hedging Strategy. As long as each of the best sector ETFs has a positive absolute momentum, it is included in the portfolio with a 20% weighting. If a best sector has a negative Absolute Momentum, the Black Swan Hedging Model replaces the sector allocation. If all of the top five sectors ETFs have a negative balance, the Black Swan Hedging Model allocation will assume a 100% weighting. Thus, Giordano achieves Antifragility in his investment portfolio by merging the peculiarities of both models.
The NAAIM Founders Award was launched in 2009 to expand awareness of active investment management techniques and the results of active strategies through the solicitation and publication of research on active management. Over the last ten years, the program has attracted more than 175 papers in support of active investment management submitted by financial professionals and academia from the U.S., Canada, Europe and Australia. A panel of investment professionals selected by the Founders Award committee reviews entries and awards the prizes.
Judges for the 2019 competition included Patrick Beaudan, Belvedere Advisors, LLC; Franklin Parker, Bright Wealth Management, LLC; Jeff Pietsch, Eastsound Capital Advisors, LLC; Shouyan He, Tulane University, and Scott Juds, SumGrowth Strategies.
Giordano’s winning paper, Antifragile Asset Allocation Model, along with prior winning Founders Award papers can be found on the NAAIM website at https://www.naaim.org/programs/find-a-whitepaper/
About the Author:
Gioele Giordano is a student at the University of Modena and Reggio Emilia at the Department of Economics Marco Biagi. Giordano served as Financial Analyst for Market Risk Management s.r.l (MRM), a leading firm in independent financial advisory for institutional and private clients, based in Milan. As an analyst, he wrote reports on the main asset classes and developed quantitative investment models. Giordano holds the Certified Financial Technician (CFTe) designation and he is a member of the Italian Society of Technical Analysis (SIAT). He won the SIAT Technical Analyst Award 2016 and the Charles H. Dow Award 2018. Giordano is the 2019 NAAIM Founders Award winner for his paper, “Antifragile Asset Allocation Model.”
The National Association of Active Investment Managers (NAAIM) is a non-profit trade group of nearly 125 registered investment advisor firms that collectively manage more than $35 billion in assets. NAAIM member firms provide active money management services to their clients to produce favorable risk-adjusted returns as an alternative to more passive, buy-and-hold investment strategies. NAAIM publishes the weekly NAAIM Exposure Index and sponsors the annual Uncommon Knowledge conference along with smaller conferences on topics of interest to its membership. For more information, visit http://www.naaim.org.