Our Process

Quantitative with common sense.

We’re a consistent bunch. Our distinctive investment approach is driven by the TWIN Equity Model™ and Fundamental Tilt®, methodologies developed at TWIN by our founding team. No optimizers here—we use our collective 50+ years of portfolio management experience to build consistent, risk-controlled value-added portfolios.

OUR PHILOSOPHY

Our job is to identify and capture the reliable and predictable sources of return while minimizing the impact of more arbitrary sources of risk. The heart of our investment philosophy is that the systematic application of in-house quantitative research coupled with rigorous risk control and applied fundamental insight in portfolio construction affords the best chance of achieving alpha on a risk-managed basis.

We’re students of the markets and understand that adaption is critical for persistent, long-term success. Our approach isn’t black box. We respectfully recognize that not all investment models are effective in all market environments, so we carefully study the environment and adjust risk accordingly. We also believe that fresh ideas often come from the outside and supplement our robust internal research efforts with new perspectives and conversations with the academic community.

Diversification is key.

Diversification and risk-control are strong elements in our portfolio construction process. We are acutely focused on active risk (tracking error relative to the benchmark), ensuring we are aware of the differences between the portfolio and the benchmark. Sectors and industries are held at a weight close to the benchmark. If a sector is represented in the benchmark, it will also be represented in our client portfolios. To avoid individual security concentration, sector and industry allocation risk, we diversify stock selection by limiting the maximum stock and sector exposure relative to the benchmark.

Implementation

TWIN differentiates itself from the mainstream investment community through the distinctive combination of a two-part process.

  • The foundational element is the “Bottom Up” TWIN Equity Model™ – a quantitative multi-factor Alpha forecasting model utilizing original research
  • No optimizer here, we then implement our “Top Down” proprietary Fundamental Tilt® portfolio construction process

TWIN EQUITY MODEL™

Alpha Forecaster Blends Multiple Drivers of Equity Performance

Our proprietary TWIN Equity Model™ ranks stocks from universe constituents based on their relative attractiveness. This multi-factor model was developed in-house to dynamically weight elements of Value, Growth and Quality. It produces a composite score ranking that reflects a combination of specific peer-relative future alpha drivers. Buy/Overweight candidates are chosen from highly-ranked stocks while Sell/Underweight candidates come from low-ranked stocks.

Valuation
+
Quality
Growth
Alpha Score

FUNDAMENTAL TILT™

Our "Secret Sauce"

Our Fundamental Tilt® approach is a key and distinguishing factor in our proven investment process because it allows us to analyze and apply fundamental insights at the market-segment level. Fundamental Tilt® leverages a diverse set of market indicators to formulate portfolio judgments; a holistic view. We use the insights gained to tilt portfolios toward the best style, capitalization segment, and other thematic elements within benchmark. We’re keenly focused on risk posture and take an active approach to managing portfolio risk via dynamic tracking error.

The goals of these approaches are to drive forward-looking assessments about the economic and investing environments, and to always take the most strategic level of risk.

Alpha Forecasting Model
“BOTTOM UP”
down arrow
Identifying Drivers of Returns
Ongoing In-house research and relevant academic studies help us to identify the most consistent and exploitable sources of excess returns to include in our relative return (“alpha”) forecasting model.
Varying Emphasis on Model Elements
We dynamically weight the model's elements according to the likelihood of each elements' "success" in the coming period, balancing momentum and reversal impulses.
Managing Risks
We also tactically adjust portfolio risks. Depending on our confidence in the model's predictions and the accuracy of risk forecasts, we will raise and lower targeted tracking error by varying the magnitude of key active bets.
Capturing Market & Style Trend
We add another layer of insight, utilizing our research on style, size, and risk. This research helps us to focus on important thematic trends not fully-captured in our forecasting model.
Fundamental Tilt ®
“TOP DOWN”
Themes
DIMENSIONS
SOURCES OF INSIGHTS
Themes
Value/ Growth
Dynamic/ Defensive
Mega/ Mid-Cap
Dividend-Paying
Sector Leadership
Macro Regimes (Rates, Inflation)
Realize Volatility
Investor Risk Appetite
Rewards to Tracking Error
DIMENSIONS
Style
Capitalization
Risk
SOURCES OF INSIGHTS
Spreads in Cap & Factor-Tracking Index Returns
Dividend Growth & Yield
Momentum/ Reversal Impulses Calendar
Market Breadth
Stock Correlations
Returns Dispersion
Incidence of Low-Priced Stocks
Risk Forecast Accuracy

TOOLS & RESEARCH

We are firm believers that a collaborative effort between research and portfolio management—throughout the investment process— is vital to delivering a consistent result.

Research is the driving force behind our investment approach. Based on our research, our portfolios gain exposure to critical factors that drive stock returns and we shift emphasis in our model to the elements that are most important in the current environment. Research here is a cohesive process, conducted with an eye toward the portfolio construction and trading functions that it will ultimately drive. Our research team uses quantitative tools to rigorously test the value and reliability of investor behavior.

TWIN Capital Management
3244 Washington Road
Suite 202
McMurray, PA 15317
Phone
724.942.2000
Fax
724.942.2002
Other Info
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