Makers of high-end investment analytical software are planning to sharply increase the power of their global programs in 1996 - in one case more than quadrupling an application's coverage to include 47 developed and emerging securities markets.
Some other changes vendors are planning for software applications and databases are:
Expanding the availability of security databases to hundreds of international asset classes;
Developing software that will operate on multiple operating systems, including Windows NT;
Making software products for analysis of mutual funds; and
Designing programs specifically for plan sponsors.
Many portfolio strategists expect the non-U.S. equity markets to outperform U.S. securities markets.
One just-released global analytical product to help portfolio managers in those markets is the Windows-based Global Asset Allocation model by Vestek System Inc., San Francisco.
The model permits clients to track monthly investment returns for more than 350 international asset classes and 43 currencies. It also allows clients to add additional asset classes.
Some of the power of the new asset allocation model comes from Vestek's joint development of the model with its parent company, Datastream International, London. The data funneled into the model comes from Datastream, a provider of international financial information.
The asset allocation model with a link to Datastream can access international equity indexes covering 32 countries, 13 regions and 88 industry sectors.
It can access emerging market equity indexes from Barings International Finance Corp. and J.P. Morgan, and global bond indexes from J.P. Morgan, Salomon Brothers and Datastream covering more than 20 countries.
It also can access country-specific economic time series reports.
Another developer of high-end analytical software, Wilshire Associates, Santa Monica, Calif., is enabling its applications to operate under the Windows NT operating system and Windows 95. Wilshire announced its fixed-income analytical system, Axiom, now operates under the two Microsoft Corp. operating systems. Until recently, it operated only under IBM Corp.'s OS/2.
"During the next six to 12 months we expect many of the other products in (Wilshire's analytical software line) Quantum Series to be available for the Windows NT and Windows 95 operating systems," said Robert J. Raab, senior vice president at Wilshire Associates.
The Quantum series already operates under OS/2.
Axiom now includes new applications for analysis of global bond portfolios.
Wilshire's global equity analysis system Atlas now includes a link between its portfolio optimization and back-testing applications. The link means the effectiveness of complex risk-based portfolio construction techniques can be easily evaluated historically.
A number of new add-on features and other products is coming from Capital Management Sciences, Los Angeles.
The firm is paying particular attention to the globalization of fixed-income portfolios with the introduction of international bonds in traditional domestic portfolios.
"Our response to that (globalization) has been to provide our users with a very complete international database, and the ability to do all the analytics across all currencies," said James Kaplan, president of CMS.
The next phase of the development of BondEdge, CMS' fixed-income analytical system will allow the users to do multiple interst rate forecasts as well as currency forecasts across all the major international fixed-income markets. The new phase will be released sometime this year.
"The tradition in this industry is that if you forecast the U.S. market - the Treasury yield curve going out a year - everyone has made assumptions as to how the other international markets will react by looking at what are kind of historical correlations. We don't believe that is the appropriate approach to take," said Mr. Kaplan.
"We believe that over the forecast periods that interest our customers, typically under a year or less, those correlations are not reliable enough to base any realistic assumption on. So we are going to be creating the software that really allows the users to forecast, in various ways, the yield curves in all of the major international bond markets," he said.
CMS is modifying a separate add-on to BondEdge, that will record portfolio positions as frequently as daily and provide transaction-based performance attribution. The add-on, called PART, will give clients detailed information about returns from different segments of their portfolios.
One feature CMS is adding to its BondEdge for Windows is break-even analysis. Investors who have securities that are about to rack up losses can use the program to determine the time it will take for another security to recoup those losses.
Another feature CMS is developing will determine effective planned amortization class bands for collateral underlying securities. PAC bands refer to the range of future pre-payments within which a PAC will remain stable.
CMS apparently is planning to release a new program called BondVu, which is still in development and which CMS executives declined to discuss. The program might test what-if assumptions using real-time data, a source said.
Another make of fixed income analytical systems is Global Advanced Technology. GAT's flagship program, Integrative Bond System, an option-adjusted spread-based portfolio analytics system that was first marketed in 1987, is undergoing revision this year.
GAT, New York, will program IBS so it will be independent of any one operating system and will work on several different platform operating systems, including Windows 95, Windows NT, X Windows and UNIX graphical user interfaces.
The programming is being done with an object-oriented design method. One advantage of that design method, said Rhoda Woo, director of marketing for GAT, is that GAT can make changes in the program to handle new securities fashioned by Wall Street within two months rather than two years.
The new program also will be Open DatabBase Connectivity compliant and use all major structured query language databases. SQL is an international standard database language.
GAT also will add new securities models and databases to IBS, which will be renamed Decision.
BARRA Inc.'s multifactor equity risk characterization and optimization program, Aegis, is also being upgraded to meet the needs of portfolio managers in foreign markets. Aegis will expand its coverage to 47 global and emerging market countries from its current 11 developed countries. BARRA also will expand Aegis' coverage to 23,000 equities from 17,000.
"Portfolio managers are investing in many more countries and assets than before. They want to see all of their portfolios in the analysis," said Andrew Rudd, chairman and chief executive officer for BARRA, Berkeley, Calif.
BARRA also will develop a version of Aegis for plan sponsor applications.
"We are looking to put more power directly in the hands of plan sponsors in the form of analytics. We are developing a product line that will span asset classes and countries, and give the sponsors a perspective on their aggregate investment mix," said Jeffrey LaRoche, product manager for sponsor services at BARRA.
BARRA also is working on a third version of its global style analyzer, and it will offer a new version of the analyzer for mutual funds.
Also this year, BARRA will release a Windows version of its global fixed-income analytical program called the Cosmos System, which will replaced the DOS-based GLOBO.
Cosmos shows term structures between similar duration instruments for 21 country markets and 26 currencies, representing all of the underlying sovereign debt in those nations.
BARRA also will build equity valuation models in its Alphabuilder program for Australia.
The firm is also entering the frontier of real-time analysis. BARRA is "in the midst of developing a whole series of real-time analytics for risk management purposes," said Mr. Rudd.
Within the next few months, BARRA intends to include a new Market Impact Model in its software. With the model, clients can construct portfolios more sensitive to transaction costs incurred during active trading, said Harish Lakhani, senior product manager for equity trading services at BARRA.
BARRA executives also are looking more closely at the defined contribution market. "The defined contribution industry has focused up to now primarily on client service and record keeping. As the industry matures, we believe the emphasis will shift to client communications, investment integrity, performance analysis and risk control," said Todd Doersch, director of BARRA's marketing and sales.
Ibbotson Associates, Chicago, will continue work on its Quantitative System Data Reader. The Data Reader is personal computer software to read, manage and integrate a broad range of data for use in historical portfolio modeling.
New products from Ibbotson will be able to look at every stock and bond series available on the New York, American and Nasdaq exchanges.
The data will be available through the Center for Research in Security Prices at the University of Chicago Graduate School of Business. But because the data is written FORTRAN, a programming language suited to scientific, mathematical and engineering applications, it isn't considered user friendly.
Using that data, Ibbotson products will allow clients to easily create portfolios and manipulate the data in a user-friendly format.
Zephyr Associates Inc., ZephyrCove, Nev., is working on what it calls upside and downside measures for its style analysis product, StyleAdvisor. The measures will tell how a manager is performing against its benchmark in up and down market periods, said Steve Hardy, president of Zephyr Associates.
Zephyr Associates is also planning a mean variance asset allocation module for StyleAdvisor. It will include an attribution module that will allow plan sponsors to determine how much of total returns are coming from their timing of allocations vs. the money managers' skill.
For fixed-income investors, Securities Software & Consulting Inc., Bloomfield, Conn., will offer its new interest rate generator called the COPE Stochastic Generator that produces randomly generated yield curves.
According to SS&C executives, simple and ultimately deficient ad-hoc interest rate generators are frequently built for financial software systems.
Without using a high-quality simulator, they said, accurate and realistic output isn't produced and the results have a negative impact on the effectiveness of the system. SS&C's Windows-based generator, they said, incorporates the latest academic findings and captures interest rate dynamics with accuracy.
