MSCI Regime Allocator Index powered by QuantCube
Macro Insight
QuantCube’s strong data science capability powers MSCI’s new index
QuantCube has recently collaborated with MSCI to launch a set of Economic Regime Allocator Indexes. The indexes are designed to leverage QuantCube’s real-time insights into GDP growth and the outlook for Inflation and to help investors adjust their asset allocation strategy.
Detecting macroeconomic regime change – the importance of real-time insights
Traditionally, investors rely on official economic data provided by central banks or statistical institutions to evaluate prevailing macroeconomic conditions. However, this data is published with a time lag with typical updates only on a quarterly or monthly basis. Therefore, it may not accurately represent the current economic conditions. This makes it challenging to detect macroeconomic regime changes fast enough to make informed decisions. For this reason, it’s critical for investors to incorporate real-time data in the decision-making process.
Strong data science capability at QuantCube – how do we leverage real-time data?
Over 15 billion datapoints from various alternative data sources are processed daily in our proprietary datalake. The datasets we process range from online prices to satellite data, geolocation data and textual data. With our cutting-edge technologies for AI analytics, computer vision and NLP (natural language processing), we then develop highly robust macro indicators in real-time. Our 50+ highly specialised data scientists support this process in three main areas; macroeconomics, computer vision and NLP. Each team possesses strong expertise in their own domain.
Macroeconomic Team - their strong expertise includes robust time series construction and econometric modelling based on various alternative data about key economic factors such as job openings, consumer prices, consumption and commodities trade. They are responsible for developing real-time macroeconomic indicators tailored for financial use cases by leveraging a fundamental approach.
Computer Vision Team - leveraging our state-of-the-art computer vision and deep learning algorithms developed in collaboration with ESA, NASA and CNES (French Institute for Space Studies), the team is responsible for extracting valuable insights from satellite imagery and geolocation data. For example, they extract unique insights for air pollution, urban growth, agricultural yield or drought conditions from unstructured satellite images.
NLP Team – is responsible for delivering accurate and precise natural language processing models. The NLP Team comprises native speakers in various languages including English, French, Chinese, Arabic, Russian, Japanese, German, Italian, and Spanish. The multilingual team is tasked with minimising the risk of misinterpretations or errors in textual data analytics.
Running large data projects at scale requires a significant amount of storage and computational power. Our data scientists work closely with our IT Team which provides robust data and cloud computing infrastructure to support high processing volume for real-time alternative data.
Detecting the macroeconomic regime early to enhance investment performance
Based on various real-time datasets and sophisticated AI algorithms as described above, our indicators are developed to provide early signals for the macroeconomic outlook. Investors can leverage these signals to detect market turning points ahead of the publication of official data publications. Using our Economic Growth and CPI Nowcast Indicators, investors can detect four macroeconomic regimes in real-time; Stagflation, Heating-up, Slow Growth and Goldilocks (Exhibit 1). Based on the changes in GDP and CPI indicators, investors can systematically detect short-term macro regime shifts effectively to optimise their investment strategies. Our back testing indicates that certain asset classes usually perform better during specific macro regimes. For instance, in a period of low growth where inflation is falling, holding treasury bonds can deliver superior performance. On the other hand, it is better to hold equities in the portfolio if economic growth and inflation are both rising. Switching out of unfavourable asset classes and re-allocating funds into more favourable ones at the optimum time can provide a strong edge in investment performance.
The new MSCI Regime Allocator Index automatically allocates assets to different market subsets based on the current economic regime detected by QuantCube’s GDP and CPI Nowcasts. As the economy moves from one regime to another, the assets in the index are dynamically rotated and reallocated with the aim of maximizing investment performance.
Click here for more information about the MSCI Regime Allocator Index
