What is a 'Systematic Manager'

A systematic manager adjusts a portfolio’s long- and short-term positions on a particular security according to price trends. Systematic managers allow a security to remain part of the portfolio as long as the price of that security remains above a predetermined level.

BREAKING DOWN 'Systematic Manager'

Systematic managers attempt to remove the behavioral component of investing, as some investors believe this can cause portfolio managers to become attached to securities or trading ideas that are no longer profitable. The manager takes a systematic approach to whether a security will remain in the portfolio, and will sell the security or close the position if its price no longer fits within the established rules.

This investment approach is similar to the macro approach taken by investment managers, but is applied across multiple markets. The systematic manager may, for example, decide to continue to hold a position as long as the spread between the current market price and the predetermined stop-loss price is positive. The longer a particular price trend has been going, the greater the difference between market price and the stop-loss price tends to be.

The Opposite of Discretion

Systematic managers have almost an opposite approach to investing than discretionary managers. Systematic managers stick with a trend regardless of the fundamentals of the security, as the manager is focusing on the price of the security. Discretionary managers, on the other hand, may examine the fundamentals of the security to determine whether the long-term price trend makes sense.

While systematic managers primarily focus on long-term price trends, they may take short-term positions in securities that may conflict with the long-term trends they adhere to. This is because short-term factors, such as a sudden price change, may present an opportunity. For example, the manager may have a bullish view of oil in the long term, but may take short-term positions with the expectation that the price of oil may fall.

Most quantitative trading techniques are systematic in that parameters are established and computer programs are put in place to automatically make trades when certain targets are reached.

Systematic Manager Example

For example, in its simplest form, a systematic manager may decide to buy XYZ shares at $10, sell if the prices falls to $8.50 and sell at $12. The reality is more complicated, however. The price targets may be determined by backtesting and technical analysis, looking at key support levels for the shares. Trade sizes, profit targets, and a host of other measures may come into play.

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