State Street's star Australian fund manager, Olivia Engel, has been tapped to run the asset management giant's global quantitative strategy in a move that will see her responsible for $US30 billion ($39 billion).
Ms Engel has been appointed deputy chief investment officer of State Street Global Advisors (SSGA) active quantitative equities strategy, where she will work alongside veteran Ted Gekas before his departure at the end of the calendar year.
The role will see her allocate capital to more that 14,000 stocks around the world, from the blue-chip constituents of the Dow Jones to Pakistani members of the Karachi 100.
"Investors all suffer from the same shortcomings regardless of where they are from. They all suffer from overconfidence. They all hold onto losers too long and they all sell winners too early. That's just what investors do," Ms Engel said.
As a quantitative stock picker, Ms Engel uses formulas to select stocks, as opposed to other stock pickers who may use qualitative measures, such as their confidence in a management team, to form the basis of their decision to invest.
State Street's approach, however, includes building the nuances of individual markets into the models. In Australia, for example, franking is incorporated into the model.
"So while there are many of the same drivers, at the same time there are key differences. Australia has a structurally different tax system, dividend imputation is really important so we have to make allowances for that," Ms Engel said.
Rose quickly through ranks
Headquartered in Boston, State Street Global Advisors is one of the largest asset managers in the world with $US2.5 trillion under management. Ms Engel will make the move to Boston in March.
The benchmark unaware strategies have attracted flows of $1 billion in the last two years, taking the funds under management she oversees today to $2 billion. Ms Engel says that investors have been attracted to their approach to risk and interpretation of active management.
"We are an active manager that is truly active. We are not the type of manager that if we don't like banks we will hold 25 per cent banks if the benchmark is 30 per cent. If we don't like banks we will hold no banks."
Like many active managers, however, State Street's decision to go underweight banks has weighed on its returns. The fund is lagging the benchmark over one month, three months and one year.
Ms Engel chalks up the underperformance to a narrow range of drivers and is cautiously positioning the strategy to incorporate the new outlook.
"There was a vast and swift change in sentiment and that affected our relative performance. We think that the market has gone too far with expectations around the new US administration's ability to change the economic landscape.
"We are starting to rotate our portfolio more towards undervalued parts of the market but not without recognising the risk within that. The deep value segment of the market can be quite risky so we have to weigh that up."
Ms Engel will be replaced by SSGA's Toby Warburton as Asia Pacific's head of quantitative equities. Mr Warburton joined the firm in 2008 from London and has more than 20 years experience including a stint as head of international equities at Barclays.
