Boost Your Portfolio with Data-Driven Insights

June 22, 2023  |  Tim Fortier

This will be your final installment in our Rules-Based Investing series in which we examined systematic investment strategies – an exciting intersection of academia and practicality within the investment space.

Throughout this series, we’ve explored the core concepts of systematic investment strategies, providing valuable insights into their application and potential advantages. 

Let’s now review the key highlights.

Understanding Systematic Investment Strategies

Systematic investment strategies, also known as rules-based investment strategies, rely on predefined rules and algorithms for investment decision-making. These strategies utilize data-driven insights, scientific testing, and disciplined portfolio construction techniques. Unlike discretionary approaches, which heavily rely on human judgment, systematic strategies aim to remove emotional biases and subjectivity from the investment process.

Benefits & Applications

Systematic investment strategies offer several practical benefits for academics, practitioners, and investors alike.

Firstly, these strategies provide objectivity and consistency by basing investment decisions on predetermined rules rather than human emotions or intuition. This aspect enhances transparency and eliminates behavioral biases, resulting in a more disciplined investment process.

Think of a rules-based strategy as a finely crafted watch, where the complexity, precision, and finishing of the movement are essential factors to its craftsmanship.

Systematic strategies are often supported by extensive historical data and rigorous testing, enabling practitioners to objectively evaluate their performance. 

By leveraging large datasets and innovative technologies, systematic approaches can uncover investment insights and adapt to changing market conditions more effectively.

Systematic strategies can be applied across various asset classes, including equities, bonds, commodities, and alternative investments. Their versatility allows investors to implement different strategies, such as momentum investing, value investing, and factor-based investing, in a systematic manner. Each strategy aims to capture specific market phenomena and exploit potential sources of return.

Momentum Investing & Systematic Strategies

Let’s zoom in on momentum investing, one of the systematic strategies that capitalizes on the persistence of recent price trends. Research shows that stocks with positive past performance tend to continue outperforming in the near future. By systematically identifying and investing in these momentum stocks, investors aim to generate excess returns.

Consider the following example: A strategy that selects the top 10 securities from the S&P 100, ranking them based on momentum and using volatility to determine position size. Starting from 2010, the returns are nearly 5 times that of the benchmark, with considerably less downside risk.

This illustrates why investors should consider incorporating such strategies into their portfolios.

Within the realm of momentum investing, factors such as price momentum, idiosyncratic volatility, and sentiment have been explored. Systematic literature reviews contribute to our understanding of these factors and their implications for investment strategies. These reviews consolidate relevant research findings and provide insights into the effectiveness and limitations of momentum-based systematic approaches.


In conclusion, systematic investment strategies offer a compelling framework that combines academic rigor with practical application. By employing predefined rules and leveraging data-driven insights, systematic approaches aim to remove emotional biases and enhance investment decision-making.

The benefits of systematic strategies encompass objectivity, consistency, transparency, and adaptability. Investors can employ various systematic strategies, such as momentum investing, to capture market phenomena and potentially achieve superior returns. As the field of systematic investing continues to evolve, further research and innovation will contribute to its refinement and broader adoption.

Schedule an appointment with one of our experienced advisors, who will guide you through the intricacies of these innovative investment strategies. Our team at Avalon understands the importance of tailored solutions, and we are committed to helping you achieve your financial goals.

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