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ACE – Analysis and Collaboration Engine

We leverage the potential offered by technology. Our proprietary ACE platform, developed in-house, supports all of 2Xideas' core workflows. It also enables optimal collaboration and knowledge-sharing throughout the firm. We see ACE as part of our competitive advantage and we are continuously adding new features.

Although we do not grant access to ACE to anybody outside the firm, we enable investors to experience it in live demonstrations and thus gain a better understanding of the depth of our capabilities.

Financial Analysis

ACE powers all processes around our financial analysis work. We start with automatically building fully-fledged financial models for all the companies in our investment universe. This approach relies on consensus data to some extent, but then goes far beyond just using the data “as provided”. In order to be able to truly compare companies across industries and countries, we have developed a virtual analyst that builds and updates self-consistent models that then feed into our screening engine.

For all companies that have passed the Idea Verification step in our Investment Process, our human analysts complement this data set with bespoke Excel-based models, which are then automatically fed into ACE as well.

Our screening engine allows us to mix data points from our virtual analyst, from our Excel-based models, and from a wide variety of other data sources. The available data sources in ACE include ESG and sustainability data, style factor loads, thematic loads, accounting-quality indicators, and sentiment scores – to name just a few.

Workflow Management

One of the main problems for investors in public equities is the occurrence of “false negatives” – companies that merit close analysis but which the manager is unaware present a timely opportunity. We have developed a proprietary scoring engine that we use in combination with an automated workflow management approach to address this problem.

Our scoring engine uses three different scores to determine potential Research Targets:

1. Quality Score

2. Random Forest Score

3. Peer Score

The Quality Score uses a cross-sectional factor approach to determine which companies exhibit the symptoms of a quality company.

We learned over the years that the quality of a business model cannot be determined using a purely data-driven approach. It is possible, however, to detect certain indicators that are seen in nearly all quality companies.

Any effort to ascertain that a company is following a high-quality business model requires an experienced human analyst. This is why we have deployed a Team of sector specialists. Nevertheless, the Quality Score allows us to narrow the search field so as to dramatically increase the likelihood of our finding those companies exhibiting this rare trait.

The Random Forest Score uses Machine Learning to identify companies that are similar to those which have already passed the Idea Verification Step in our Investment Process.

We feed a methodically selected and normalized set of criteria into the Random Forest algorithm, and use the companies that our experienced Team of investment professionals has deemed to be of exceptional quality to calibrate the model.

The beauty of this Machine Learning approach is that while it returns a shortlist of similar companies, there is no need to explicitly define what “similar” means – the algorithm learns this by itself by constantly observing the work of the human analysts and their reaction to its suggestions.

We arrive at the Peer Score by analyzing the holdings of a thoughtfully crafted list of other asset managers – either direct peers that follow an investment style similar to our own, or firms specializing in a sector that is of particular interest to 2Xideas.

ACE automatically collects all publicly available information on the holdings of these asset managers on a daily basis by analyzing 13F Statements and other regulatory filings in various jurisdictions, and by scraping the websites for additional information.

In this way, we can complement our target list with companies that the Quality Score and the Random Forrest Score missed, but where other asset managers with good track records start investing – and we think we should at least be aware of that.

ACE then uses the result of our scoring engine to automatically select potential Research Targets for our human analysts. These companies are fed into a workflow management tool within ACE that allows us to track the progress of each research project, determine the long-term outcome of each go/no-go decision we take, and enables collaboration within and across sector groups.

Portfolio Construction

Since 2Xideas specializes in mid cap investing, off-the-shelf factor models calibrated for portfolios that mostly contain mega caps fall short of our needs. We have thus developed a proprietary, cross-sectional factor model that integrates Style Factors, Industry Factors, and Country Factors. We use this factor model to dissect performance, analyze risk exposures, and optimize our portfolios.

Our quarterly process that governs structural changes in our portfolios is based on collective decision making. ACE fully supports this process by incorporating a voting engine that systematically collects the input from all members of our Investment Decision Committee. This creates a per-person track record that we use to determine the voting powers of the individual voters.

As we are never satisfied with the status quo and always strive to get better, we use this granular high-quality dataset to systematically drive a feedback cycle designed to improve our decision-making process over time. We regard this and other ACE-enabled feedback loops as a key competitive advantage.

Portfolio Management

We also use ACE to perform a variety of pre- and post-trade checks and to automatically reconcile our trades and fund transactions. The platform is also used to automatically generate risk reports, monitor performance thresholds for individual positions, and analyze the risk-return characteristics of our portfolios on an ongoing basis.

Investor Relationship Management

One of our core tenets at 2Xideas is to build direct, lasting relationships with our investors. We use ACE to achieve this result and have thus built a bespoke CRM system into the platform. This system allows us to generate personalized emails, log all relevant interactions, and allocate fund transactions to our investors.

ACE is also connected to our website where we use it to set access rights for the content we publish and to automatically generate our daily factsheets.

Future Capabilities

We are nowhere near running out of ideas for additional functionality for ACE and can hardly wait to see these plans become reality. Our commitment to investors is that we will continue to prioritize strengthening our capabilities over maximizing our short-term profitability. This pledge is reinforced by a complete alignment of interests.