JONATHAN C. ANGRIST
President and Chief Investment Officer, Cognios Capital
Jonathan Angrist co-founded Cognios Capital in 2008. Angrist has over 20 years of investment experience with 12 years managing long/short hedge fund strategies. His educational background includes an M.B.A. and a B.S. (Summa Cum Laude and Phi Beta Kappa) from Tulane University.
Question 1: Briefly describe your strategy?
Answer: The Cognios Market Neutral Large Cap Fund employs a beta-adjusted equity market neutral strategy that is non-correlated to the broad equity and fixed income markets. All holdings, long and short, are constituents of the S&P 500; We don’t use ETF’s or derivatives of any kind. All investment decisions are based on Cognios’ proprietary stock selection and portfolio construction methodology, ROTA/ROME®.
Question 2: Does market neutral mean zero beta?
Answer: At Cognios, we believe that it should. The majority of equity market neutral strategies are actually dollar neutral, as opposed to beta-neutral, which leaves investors with exposure to the market of which they may or may not be aware. Beta measures the sensitivity of a stock to the overall movements of the stock market so by being beta-neutral we are able to generate returns that are essentially pure alpha and not correlated to the broad stock market.
Question 3: How do you choose your long & short positions?
Answer: All of the positions in the long and short book are constituents of the S&P 500 and chosen using ROTA/ROME®. It is a fundamental, quantitative methodology that seeks to identify companies whose per share intrinsic value has diverged significantly from the current market price of its stock. ROTA/ROME® focuses on a company’s Return on Tangible Assets (“ROTA”) and Return on Market Value of Equity (“ROME”).
Question 4: Why does market neutral makes sense now?
Answer: Market neutral is one of the only truly diversifying strategies; it is inherently designed to generate returns independent of the market. Many other “alternative” asset classes can create diversification traps in an investor’s portfolio by appearing to be non-correlated but then moving with the market in periods of stress. Given the current interest rate environment coupled with stock market valuations, investors need a strategy that is non-correlated and we believe that market neutral is one of the few strategies that can actually achieve returns independent of the market.
Question 5: What’s the biggest risk investors face today?
Answer: Rising Interest Rates, but not just for the impact that it has on bond portfolios. Rising rates will impact the equity market as well generally putting downward pressure on stock prices. Given the current multiples at which the S&P 500 is trading, it is unlikely that companies will be able to grow earnings at rates great enough to sustain current prices. So, if companies can’t grow earnings by significant amounts, then prices have to come down. Investors are currently faced with an environment that is likely unfavorable to both their equity and fixed income allocations.