Scope rates DWS Qi Dynamic Factors platform at the highest grade of AAA
Scope has assigned a rating of AAA (AMR) to the DWS Qi Dynamic Factors team, confirming its quality and competence in its management of share strategies that use a proprietary quantitative approach based on a dynamic-factor model.
The DWS Qi Dynamic Factors team uses a quantitative investment approach that relies on a dynamic multi-factor model. Unlike static multi-factor models, this model dynamically adjusts to accommodate changing market conditions. DWS is a pioneer in the use of dynamic multi-factor models, and it has been successfully implementing the approach over several market cycles. Strategies managed under this approach have had very impressive performance that has remained remarkably constant regardless of the market environment.
Scope’s analysis found that the DWS Dynamic Factors team has a very high level of industry experience averaging 18 years per team member. The percentage of investment professionals with additional qualifications is above average. At 14 years, average time with the company is very high as well, and there is comparatively little turnover on the team. There have been four new hires and only two departures during the past three years.
Scope rates the DWS Qi Dynamic Factors team’s investment process as “excellent”. Their investment approach is highly systematic and disciplined, and is, in Scope’s view, implemented consistently. Largely doing away with discretionary interference in the process has ruled out common behavioural biases. The DWS team has significant competitive advantages over its rivals when it comes to using factor models, particularly as a result of its nearly 20-year history. In addition, it can very flexibly integrate ESG factors in the investment process depending on customer wishes by using ESG lists, negative lists or positive lists when selecting individual shares (for instance).
One of the process’s disadvantages, on the other hand, is its relatively high dependence on consensus estimates, which are used as input for the dynamic-factor model. If sell-side research were to be thinned out as a result of MiFID II guidelines, there could be a significant negative impact on the quality of the model, especially in the Small & Mid-cap segment.
Scope assesses the strategy’s Unique Selling Proposition (USP) as “excellent”. With quantitative approaches, trend disruptions often have a negative influence on how a strategy performs, given that these models usually lag behind when the trend changes. This is definitely not the case for Qi Dynamic Factors, because the model is specifically focussed on identifying changes in trends and it dynamically adapts to new market conditions. Composite performance is convincing across all relevant periods, delivering good risk-adjusted performance. In contrast, Scope considers the development of assets under management as “weak”.
The Qi Dynamic Factors team has extremely capable IT infrastructure at its disposal, in Scope’s view. In addition to market-leading software solutions, the team has numerous proprietary applications at hand, particularly for quantitative research. Integrated risk management is rated as “excellent”.