Analyst Who Called Indonesia Slump Returns With New Quant Fund
(Bloomberg) -- John Rachmat, the former sell-side analyst who famously predicted a bear run in Indonesian equities in 2014, is back -- this time with a quant fund.
The former head of research at PT Mandiri Sekuritas, the brokerage arm of Indonesia’s second-largest lender by assets, teamed up with PT Pinnacle Persada Investama, the first quant-based asset manager in Indonesia, to start an “all-weather” mutual fund that will use quantitative strategies. The Pinnacle Granditas Dynamic Balanced Fund, which started April 11, has already escaped a more than 8 percent rout in the nation’s equities and a spike in bond yields after its models decided to stick to cash, Rachmat says.
“The fund has outperformed the Jakarta Composite Index by 9.1 percent in 23 days,” Rachmat said in an interview. “I couldn’t have asked for a better start.”
Rachmat, who’s seen at least a dozen crashes in Indonesian stocks during his 24 years covering the market, decided to categorize the investment vehicle as a balanced fund rather than an equity fund, because he didn’t want to be required to have at least 80 percent of assets in shares. With that classification, his fund can mostly sit in cash if markets are headed south.
“Historical lessons taught us that no stock will save you from the market correction, and it could take years for us to recoup the losses,” Rachmat, 51, said.
The Asian financial crisis, for example, caused a 54 percent rout in the Jakarta Composite, an 85 percent depreciation in the rupiah, and the fall of the former dictator President Suharto after a three-decade reign.
Rachmat’s fund follows a two-step approach. First, it works out whether it should be in stocks or bonds at all. The model reviews a number of closely guarded variables decide whether to buy either or both of those asset classes. Once it considers it safe to invest in those assets, it decides which ones to purchase.
To pick stocks, the model looks at everything from historical prices to valuations, relevant commodity prices, market fundamentals and economic conditions.
Then the humans get involved, adding another layer of screening to make sure the algorithms haven’t missed “a stinking issue that’s bubbling in that company,” something that’s less easy to quantify, Rachmat says.
Rachmat’s is the first balanced fund in Indonesia to offer quantitative strategies, John Teja, a director at PT Ciptadana Sekuritas Asia, said by phone. “This could be the start of a disruptive period for the asset management industry.”
Rachmat is no stranger to going against the grain in the Southeast Asian country. His bear call on Indonesian equities in September 2014 was a controversial one, but it proved -- with time -- to be correct. The Jakarta Composite plunged more than 25 percent in the space of months from a high in April the following year.
He demanded that his analysts be “nonconsensus and right,” said Handy Yunianto, a fixed income analyst and former colleague of Rachmat at Mandiri Sekuritas.
Rachmat, a Singaporean citizen who was born in the Indonesian town of Kediri, says the biggest gift of using quantitative models is that he can spend less time checking the markets compared with his days in the brokerage world.
“I now spend most of my time at home, so I can wear shorts and tees more often,” he said while enjoying his dinner from a popular Chinese restaurant on Singapore’s Orchard Road. “With this model, technically I only need to review any potential portfolio changes once every three days or even a week.”
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