[The SP500 index is up 90% since October 2022 – a solid 3-year bull market without any major lasting correction and change of market regime. Investing in indices and passive products proved to be rewarding, but the obvious question now is – can this continue in 2026?
We reached out to Rocco Pellegrinelli, CEO of Trendrating, a leading provider of advanced analytics and investment research technology to 300+ firms in the institutional, asset, and wealth management business, to get his view on how to prepare for managing this year’s market.]
Tooth: What do you think we can expect in 2026?
Pellegrinelli: A simple analysis of the market cycles of the past decades shows that after a series of years of bull trend, there is a high probability of a bear phase or an extended sideways market. These are possible scenarios, and in these cases active management is the only way to generate returns.
Betting on indices and passive products is now risky. We recommend that you be prepared by adding active investment methodologies designed to manage risk and capture the opportunities in those types of markets.
For example, a great opportunity for active investors is the consistent presence of extremely wide performance gaps between stock markets. The ability to reach more of the outperformers and avoid the underperformers has a major impact on investment performance. Even in 2022, when the S&P 500 fell 18%, the top 25% of performers in the index posted an average gain of 22%.
Hortz: How can active management best perform in such market environments?
Pellegrinelli: We believe that using advanced technology to discover factual insights and access better market information makes a big difference. It’s about knowing the difference between information that is meaningful and information that makes money. Knowledge of what works and what is useless is the foundation of successful investment strategies.
The key lies in determining the investment rules, parameters and price trends that can best capture the outperformers and avoid the losers that always occur in the stock markets. To do this, professional investors need and deserve the best possible flow of information, with real added value, based on fact-finding, historical validation and respect for price developments.
Tooth: How can managers discover the most effective investment selection parameters?
Pellegrinelli: The answer lies in finding facts. Operating on assumptions, ideas and opinions without solid, documented evidence of the true value of capturing alpha is unsafe and risky. It is wise to conduct a rigorous historical test and validate the parameters and rules for an active investment strategy. Advanced technology makes it possible to conduct rigorous historical testing and assess the actual contribution to performance of investment rules that people are accustomed to implementing.
For example, it is interesting to discover the difference between various fundamental parameters in each market and sector. It is also possible to explore any combination of fundamental, quantitative and technical analysis rules and discover the winning mix in delivering superior returns consistently across market cycles.
By using investment technology you can discover what you can trust to perform. Knowledge of hard facts is worth gold and avoids the pitfalls of assumptions. Ignoring where the real value lies is a recipe for underperformance.
Tooth: Are there useful guidelines to validate and implement this investment selection process?
Pellegrinelli: We recommend running a robust ten-year test and combining the most productive fundamentals with trend validation metrics to select only good companies that are also good supplies. Good stocks can be identified through advanced fundamental alpha discovery research, combined with price trend analysis, uncovering factual insights and market analysis with a measurable impact on performance.
The performance gaps between stocks provide active investors with a great opportunity to beat benchmarks in any market cycle, if they use the right information flow to reveal factual insights that have substantial, documented value. Performance dispersion is always at work and select stocks with strong, validated price trends will have a greater chance of posting gains.
Tooth: What is your formula for maximizing investment performance?
Pellegrinelli: Use a rigorous research testing platform that combines fundamental intelligence with real-time validation and capture of price trends:
Basic intelligence – learn which fundamental parameters work best and yield a potential 10% performance difference.
Trend validation – respect and exploit price trends to maximize returns. The size of the trend spread can be greater than 20%.
Our Strategy Builder tool and AI assistant can help you discover the best investment parameter mix for generating alpha, create your select lists using our real-time price trend analyses, and build your model portfolios.
We are currently inviting and offering managers extended free trials to demonstrate and prove with facts how our advanced AI price trend analysis and alpha discovery research platform can provide enhanced market intelligence, strengthen risk management and improve investment performance for any manager, using any investment methodology.
This article was originally published here and is republished on Wealthtender with permission.
About the author
Bill Tooth
Founder Institute for Innovation Development
Bill Hortz is an independent business consultant and founder/dean of the Institute for Innovation Development, a platform and network for business innovation in the financial services industry. With over 30 years of experience in the financial services industry, including expertise in asset manager sales/marketing/branding, as well as creatively restructuring and developing internal/external sales and strategic account departments for 5 major financial firms including OppenheimerFunds, Neuberger&Berman and Templeton Funds Distributors. His broad experiences have led Bill to a strong belief, passion and advocacy for strategic thinking, innovation creation and strategic account management as the nexus of business skills needed to meet a business environment challenged by an increasingly rapid pace of change.
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