STAMFORD, Conn. -- Recent market volatility hasn't dampened the performance of GTE Investment Management Corp.'s internal equity strategies.
Amid the recent ups and downs of the stock market, GTE's quantitative equity strategies are holding up relative to their benchmarks, GTE executives say.
Moreover, the strong recent performance comes on the heels of about three years of good relative returns.
Separate from the internal equity strategy, GTE recently started a defensive options strategy, which still is in a small testing phase, they said.
Managing the riskiness of investments relative to their benchmarks is an integral part of what GTE's $2.5 billion internal operation does, said Wayne Hofmann, managing director of equities and trading.
Year-to-date through September, GTE's internal portfolios are about 240 basis points ahead of its primary benchmark, the S&P 500. Longer term, the portfolios are about 90 basis points ahead of the S&P 500 for the three years ended July 31, the most recent period available.
GTE executives use quantitative models to forecast which business sectors will do best, creating top-down allocations to nine areas, Mr. Hofmann said.
The sectors GTE uses are basic industries, cyclical industries, noncyclicals, technology, energy, financials, industrials, conglomerates and utilities. Much of the work is based on methods and systems developed by consulting firm BARRA Inc., Berkeley, Calif., "but we've gone a couple of steps beyond," he said.
After the allocations are determined, GTE uses separate computer models to pick stocks within sectors, GTE executives say.
GTE uses the strategy in three large-capitalization U.S. equity portfolios, one pegged to the S&P 500, one tied to the Russell 1000 Growth index and one tied to the Russell 1000 Value index.
Although each portfolio is managed separately, GTE executives make sure that when the portfolios are combined, there aren't any unintended bets being made relative to the S&P 500, said Donald Lydiksen, senior portfolio manager.
GTE executives regularly compare their forecasts with how things actually worked out, Mr. Hofmann said, and frequently refine the models.
The strategy typically produces portfolio trading turnover in the 50% to 60% range.
GTE's portfolios are currently overweighted in the technology and utilities sectors and underweighted in the basic and cyclical sectors.
Mr. Hofmann wouldn't say much about GTE's current options strategies, except that they are defensive in nature and different from the types of strategies the company used a few years ago.
The options strategy could be expanded if deemed a success in the testing phase.