What is systematic investing, and why does it work?
Most investors are familiar with active fund management, a portfolio manager studies companies, forms a view, and buys or sells based on their conviction. It is the model that has dominated the industry for decades.
Systematic investing works differently. Instead of relying on a person's judgement, it uses a defined, rules-based process to make investment decisions. The process is built on data, tested against history, and applied consistently, regardless of what the market is doing or how the portfolio manager is feeling on a given day.
At Avangard, every investment decision we make flows from a systematic process. Here is what that means, why it matters, and why we believe it leads to better outcomes for investors over the long term.
What does systematic investing actually mean?
A systematic investment process starts with a hypothesis: that certain measurable characteristics of a security, price momentum, valuation signals, earnings patterns, or other quantifiable factors, are predictive of future performance.
Those hypotheses are tested rigorously against historical data. The ones that hold up become part of a set of rules. Those rules are then applied mechanically to a universe of securities, in our case, more than 2,500 ASX-listed stocks and ETFs, to rank them from most to least compelling.
The portfolio is built from the top of that ranking. Positions are sized systematically. Risk controls are applied by rule, not by feel. And the process repeats, daily.
A systematic process does not decide what to buy based on a conversation with a CEO, a tip from a broker, or a gut feeling about where the market is heading. It decides based on data, and data alone.
How is it different from discretionary investing?
In a discretionary fund, the portfolio manager is the edge. Their experience, insight, and judgement determine which companies to own and when. That can work, there are skilled discretionary managers who have generated strong long-term returns.
But discretionary investing has inherent weaknesses. Human beings are subject to cognitive biases, anchoring to past views, overweighting recent events, avoiding losses even when the rational decision is to sell. Even the most disciplined discretionary manager is affected by these biases to some degree.
Systematic investing removes these biases from the decision-making process. The signals are what they are. The rules say what to do. The portfolio reflects the output of the process, not the mood of the person running it.
| Systematic | Discretionary | |
|---|---|---|
| Decision basis | Data and codified rules | Human judgement and research |
| Consistency | Same process every day | Varies with manager |
| Emotional bias | Removed from execution | Can influence decisions |
| Transparency | Every decision traceable | Depends on disclosure |
| Key-person risk | Process-dependent, not person-dependent | High, relies on individual |
| Scalability | High, rules scale | Limited, people do not |
Why does it work?
The academic case for systematic investing has been building for decades. Researchers have documented the existence of persistent return factors, characteristics of securities that have historically been associated with above-average returns.
Momentum is one of the most well-documented. Securities that have outperformed over the past 6–12 months have historically continued to outperform in the near term, across markets and time periods. This reflects how information, sentiment, and capital flows work in markets.
Systematic strategies capture these patterns by applying the same rules consistently, at scale, across a large universe of securities. What an individual investor or analyst cannot do, monitor thousands of stocks daily, apply the same decision rules without fatigue or bias, and respond to changing signals in real time, a systematic process can.
What systematic investing is not
Systematic investing is not passive investing. Passive funds track an index and hold whatever is in it, in proportion. Systematic funds actively select and weight securities based on signals, they just do it through a rules-based process rather than a discretionary one.
It is not a black box. A well-constructed systematic process is more transparent than most discretionary approaches. Every signal is documented, every rule is codified, and every decision can be traced back to a specific input.
And it is not infallible. No investment process generates positive returns in all conditions. Systematic strategies can underperform during periods when market behaviour deviates sharply from historical patterns. Managing that risk is part of the job.
How Avangard approaches systematic investing
Avangard's systematic process is implemented through A.L.F.R.E.D., Adaptive Learning For Ranking Equities and Derivatives, a proprietary AI system developed over decades by our CEO and Portfolio Manager, Alf Eggo.
A.L.F.R.E.D. processes over 28,000 daily price inputs across 2,500+ ASX-listed securities, applies 24 years of proprietary momentum models, and produces a ranked view of the market each day. That ranking drives portfolio construction. No discretionary overrides. No guesswork.
Human-led. Technology-driven. Systematically disciplined.
If you are a wholesale investor interested in learning more, contact us at office@avangard.au or request the Information Memorandum directly from our website.
Past performance is not a reliable indicator of future performance. The fund is available to wholesale investors only.