Hedge funds to capitalise on investor need for stability
Demand for quantitative strategies is expected to rise as technology supports more agility in the space and the approach can outperform in the current market environment. Risk and stability are also taking centre stage as investors are concerned about volatility, highlighting the importance of a strong risk management approach.
According to David Mascio, CEO, Della Parola, quantitative strategies represent the most significant opportunity for growth: “Research shows that a quantitative investment approach can outperform in this kind of market environment. With continuing advancement in technology, the speed at which one can process and react to new information is accelerating. This allows for increased agility, especially in our strategy.”
Della Parola, winner of the Best Emerging Manager: Equity Hedge title at the Hedgeweek US 2022 Awards, runs a quantitative, hedged equity strategy that utilises a proprietary, systematic and quantitative risk model to determine the market risk environment.
Mascio notes that investors no longer consider every dip to be a buying opportunity as risk and volatility have climbed up their list of concerns, adding: “In addition to providing downside protection, our strategy is designed to produce better risk adjusted returns than the market over a full market cycle.”
In this environment, the greatest risks investors face are understanding and navigating the new drivers of volatility in both directions. This is also critical for Della Parola as a firm. Mascio says: “Fortunately, we have addressed this within our risk models to make sure we are "seeing the whole picture" day to day and acknowledging new factors that can also give us an edge.”
Risk is the key word as Mascio explains that risk mitigation and supporting clients in understanding where risk currently stands in their portfolio and in the broader equity markets is a crucial task for the firm. He adds: “We have also found that fear of the unknown, depending on the investor’s time horizon, is very relevant right now, as are concerns about how gains that have been accumulated over the last several years can be preserved.”
Mascio explains how in the current macroeconomic environment, it is Della Parola’s job to navigate market volatility and preserve or even appreciate investors' assets: “Our clients invest with us because our strategy is built for the full market cycle. It's easy to take things for granted when markets are going up. It's when volatility sets in and a bear market emerges that having risk management integrated into the investment strategy really delivers its value, and we have done a good/great job of mitigating risk for our investors so far this year.”
Looking ahead, Mascio sees the appetite for hedge funds increasing, particularly in light of the rise in the cost of borrowing, which could see investors shift their focus away from real estate and private equity. “There is now a lot of cash on the sidelines because of the fear of the unknown. This presents a great opportunity for hedge funds and investors alike. Strategies designed to perform regardless of market direction, volatility and risk are increasingly in demand,” says Mascio.
David Mascio, CEO, Della Parola – Dr David Mascio is the Chief Executive Officer and Chief Investment Officer of Della Parola Capital Management. Dr Mascio is also the Roland and Sarah George Professor of Investments at Stetson University where he continues his research. Dr Mascio founded Della Parola in 2005. Previously, David was the CIO of First Western Capital Management. When First Western was acquired by Northern Trust, David spun off on his own to launch Della Parola to manage money for a select group of families as he continued his research in AI/Machine Learning and its application in the financial markets which he published in the Financial Journal of Forecasting. In 2020, David deployed his latest quantitative hedged equity strategy. Dr Mascio earned a BA in Economics and Business Management from the University of New Mexico in 1994, an MBA in Finance from the University of Liverpool (United Kingdom) in 2006 and a PhD in Finance at EDHEC Business School (Nice, France) in 2018. He is an Accredited Asset Management Specialist (AAMS) and a member of the CFA Institute and the CFA Society of Orlando.