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Intelligent Diversification with Automated Strategies and Uncorrelated Risk

Systematic funds adopt a rules-based investment approach that differs from that of traditional fund managers. 

As a result, systematic funds offer a different type of risk-reward that is often uncorrelated with that of traditional asset managers. Therefore, systematic funds can bring additional diversification to an investor's portfolio.

Systematic Investment Fund

Systematic funds typically have automated trading and execution that allow for many types of trading strategies and approaches. These approaches are often beyond the reach of traditional fund managers due to their automated nature.

A Systematic Mutual Fund is a type of fund in which investment decisions are based on mathematical algorithms and quantitative models rather than direct human judgment. Whose objective is always to identify trends within standardized markets and take advantage of them in a matter of minutes, with the clear objective applying the established model.

Key Features of a Systematic Fund:

  • Advanced Mathematical Models and Algorithms

    They use mathematical models and algorithms to analyze large volumes of financial and economic data. These models may include techniques such as statistical analysis, mathematical optimization, machine learning and other quantitative approaches.

  • Minimizing Human Bias in Investments

    By relying on mathematical models and algorithms, these funds seek to minimize the impact of human bias and emotional investment decisions.

  • Automated and Efficient Decisions

    Buying and selling decisions are made in an automated way according to the rules defined by the models. This reduces human intervention and can increase the efficiency of decision making.

  • Data Analysis for Market Forecasting

    These funds typically process large amounts of data to identify patterns and forecast market movements. They use techniques such as technical analysis, quantitative fundamental analysis, and alternative data.

  • Diversified and Specialized Strategies

    They may employ various strategies, such as statistical arbitrage, high frequency trading, or momentum strategies. The specific strategy depends on the mathematical model used.

  • Automatic Data Driven Portfolio Adjustment

    The fund's portfolio can be automatically adjusted based on changes in data or model parameters, ensuring that the investment strategy remains aligned with the model's objectives.

Systematic Investment Funds as an equity investment also present financial risks:

Data Risk:

Data quality is crucial. Incorrect or incomplete data can lead to confounding of the applied model.

Risk of overadjustment:

Models may be too tightly tuned to specific historical data and may not generalize well to new market conditions.

System Risk:

Reliance on technology and algorithms can be vulnerable to technical failures, bugs in software.

Liquidity risk:

Some models may rely on rapid trade execution, and in less liquid markets, this can be a challenge.

Advantages:

Mathematical models can analyze and process large volumes of data quickly.

Automation reduces the impact of emotions on decision making.

Models can help build diversified portfolios and manage risk effectively.

Private

1,100 private debt funds

There are currently more than 1,100 private debt funds in the market, according to Preqin data (August 2024), 60% of them U.S.-based.

Preqin Investor Outlook

Preqin's Investor Outlook: H2 2024* reveals that 70% of LPs favor direct lending. In terms of emerging strategies, 58% prefer asset-backed lending, and 37% prefer private debt secondaries.

Reliable revenue stream

The survey conducted by our Research Insights team revealed that 27% of respondents have already allocated to private debt (including funds of funds), with two-thirds allocating more than 5% to the asset class. Its attractions include a reliable income stream, diversification and high risk-adjusted returns. Just over three-quarters of respondents target 8-14%.
Surprisingly, 86% of respondents say the performance of private debt has met or exceeded their expectations. And 63% expect the asset class to continue to perform as well as it has over the next 12 months, but 30% of private debt investors expect performance to be even better.

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Exchange Traded Funds UCITS

UCITS (Undertakings for Collective Investment in Transferable Securities) funds are a type of investment fund created under a European Union directive. The UCITS directive provides a uniform regulatory framework for investment funds that can be offered to investors throughout the EU.

Here are some key aspects about UCITS funds:

Diversification and Protection: UCITS funds must comply with strict diversification rules to protect investors. This means that the fund cannot concentrate too much risk in a single asset or issuer.

Liquidity: UCITS funds must offer investors the possibility of buying and selling units in the fund at a set frequency (usually daily).

Transparency: UCITS funds are required to provide detailed information on their investments, strategies, and risks to investors. They must also publish periodic reports on the fund's performance and financial situation.

Investor Protection: UCITS funds are designed to protect retail investors and are often subject to strict rules of conduct and supervision by regulatory authorities.

UCITS funds are investment funds that offer a high level of protection and transparency, which makes them attractive to global investors with strict European regulation, creating the necessary confidence to invest in them.

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About KNG INTERNATIONAL ADVISORS

At KNG International Advisors, we are a wealth advisory firm with more than 25 years of experience in international markets. We offer our services to Investors, Family Offices, Wealth Managers, International Financial Advisors in Latin America, Africa, the Middle East and Asia. We already have a portfolio of more than 4,000 global clients.

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