Why 10 Strategies?

There is not an obvious way to determine the correct number of strategies being pursued by managers within the equity universe. Instead, there are many different ways that funds could be grouped and the 10 SBI strategies is simply one such approach. However the SBI approach is based on a lengthy and iterative process of combining information from equity managers and fund prospectus language, all of which is used to create the Strategy Identification algorithm. The choice of 10 strategies is based on objective information and a carefully structured decision process.

Furthermore, AthenaInvest conducted a series of tests to determine if the 10 strategies are statistically unique and if each strategy is focused on a different aspect of the equity market. That is, are managers actually pursuing different investment approaches and are they exploiting different types of investment opportunities for their investors. If they are not, then grouping funds based on stated strategy provides little useful information.

The statistical tests conducted reveal that the return differences among the 10 strategy are statistically significant. In addition, return differences cannot be explained by risk differences and in fact higher strategy returns are associated with lower risk (as measured by standard deviation or beta). Thus there are at least 10 distinct, statistically different return factor groupings upon which active equity managers focus.