Power in data

Understanding our investment process

MDT strategy matrix

Strategy All Cap Core Large Cap Growth Large Cap Value Mid Cap Growth Small Cap Core Small Cap Growth Small Cap Value Market Neutral Micro Cap Tax Aware All Cap Core Balanced

Federated Hermes MDT Advisers offers a broad suite of U.S. quantitative investment solutions to fit a variety of portfolio structures as a core or complementary strategy. The team’s internally developed investment process employs a disciplined, bottom-up, quantitative investment approach designed to be objective and absent of human bias.

MDT’s underlying investment philosophy is that excess returns can be achieved using an active, systematic investment approach. We believe that sophisticated modeling can identify forecasting techniques that are most relevant to different company types, resulting in greater breadth of alpha sources and the potential for more consistent performance. We also believe that ongoing, innovative research is essential to discovering opportunities and strengthening the investment process.

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Investment process highlights

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The MDT investment process is equipped with an analytical edge—evaluating each stock in the universe using a combination of intuitive fundamental and technical factors we believe are most relevant to successfully predicting the track of that stock’s future performance. This approach differs from many other quantitative approaches that might place a heavy emphasis on one particular factor or group of factors, or whose style of investing tends to favor one particular style (i.e. value or momentum).

Investment strategies (As of 9/30/24)

Assets under management (As of 9/30/24)

Year heritage (As of 9/30/24)

Billion

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MDT discusses how a seemingly insignificant factor can interact with other factors to make their stock selection process more robust. It provides meaningful insight into a key tenet of MDT investment philosophy—that certain factors can be more significant when applied to certain types of companies.

How to measure it and why it matters

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COMPANY AGE:

PROCESS

PHILOSOPHY

$12.2B

Each day, we evaluate every stock in the U.S. market and forecast its expected return relative to each Strategy’s respective benchmark. We do this by identifying unique combinations of over a dozen factors we believe are most relevant to successfully predicting each stock’s future performance.

confirm

EVALUATE

IDENTIFY

OPTIMIZE

CONFIRM

Our quantitative process identifies various types of companies, each with distinct combinations of intuitive, fundamental and technical attributes shown to outperform and underperform over time. We believe this differentiated and transparent approach leads to more diverse alpha sources across the broad investment universe and provides our process with an analytical edge relative to other strategies.

IDENTIFY

At the root of our process is intensive risk management. We employ a variety of benchmark-relative investment constraints, including sector, industry and company limits. We also consider the correlation of our companies so that we can better understand other types of risks our portfolio may be exposed to. The goal is to optimize our outperformance but within a moderate amount of active risk.

optimze

Our investment process is fully transparent and behind our quantitative models is human oversight. Members of the team review each trade to ensure the decisions are reflecting accurate, up-to-date information. This process may involve:

Overall, while less than 1% of proposed trades are overruled, this important step helps reduce the chance of making any trades with incomplete data.

The MDT Team continuously evaluates every element of the investment process for potential enhancements. The effectiveness of each underlying factor may change over time, new factors may arise and others can become obsolete. The ability to rapidly leverage cutting-edge technologies and academic research to maintain its strategies’ alpha potential is an important piece of how the MDT Team seeks to deliver time-tested, repeatable performance across its strategies.

evaluate

Utilizing regression trees—which drive all of their investment strategies—is the distinguishing feature of MDT’s investment process. This is a helpful look into the quantitative approach to stock selection that MDT has applied for over 20 years.

A deliberate approach to stock selection

Classification and regression trees:

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MDT’s investment process has evolved from utilizing a single decision tree process to using multiple trees. After implementing decision trees in 2001 and monitoring their effectiveness, they determined that multiple decision trees give them a more flexible decision-making framework.

Using multiple decision trees for stock selection

SINGLE TREE PROBLEMS:

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FSCC

Seeks to be a well-diversified portfolio of small-cap stocks that can deliver long-term excess returns with a moderate tracking error relative to its Russell 2000 benchmark.

MDT Small Cap Core ETF

SMALL CAP

FLCG

Seeks to be a well-diversified portfolio of growth stocks that can deliver long-term excess returns with a moderate tracking error relative to its Russell 1000 Growth benchmark.

MDT Large Cap Growth ETF

LARGE CAP

FLCV

Seeks to be a well-diversified portfolio of value stocks that can deliver long-term excess returns with a moderate tracking error relative to its Russell 1000 Value benchmark.

MDT Large Cap Value ETF

LARGE CAP

FLCC

Seeks to be a well-diversified portfolio of large-cap stocks that can deliver long-term excess returns with a moderate tracking error relative to its Russell 1000 benchmark.

MDT Large Cap Core ETF

LARGE CAP

MDT featured products

SMA/UMA

Mutual Fund

INSTitutional AccountS

ETF

Strategy All Cap Core large cap core Large Cap Growth Large Cap Value Mid Cap Growth Small Cap Core Small Cap Growth Small Cap Value Market Neutral Micro Cap Tax Aware All Cap Core Balanced

MDT strategy matrix

Join Equities CIO Stephen Auth and quantitative investing experts Dan Mahr and Damien Zhang for a 30-minute webcast.

Generative AI in investment management: opportunities and pitfalls

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Join Equities CIO Stephen Auth and quantitative investing experts Dan Mahr and Damien Zhang for a 30-minute webcast.

Who is Federated Hermes MDT Advisers

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