361 Capital’s acquisition of BRC Investment Management is a nod to the growing influence of behavioral investing.
In October, 361 Capital acquired BRC Investment Management, gaining its eight employees and nearly $800 million in assets. BRC’s strategies include large-, mid- and small-cap, as well as Japanese All-Cap Equity.
361 and BRC take a rather different approach on behavioral investing – focusing on the behavioral biases of analysts. Because even analysts are victims of behavioral biases, too.
“We like to talk about crowded trades,” Tom Florence, CEO of 361 Capital, told ThinkAdvisor. “Well, analysts are no different from anyone else. They tend to move as a crowd. So, if the crowd is moving raising estimates then it’s going to probably create more of a probability of an increase in stock prices versus just one analyst.”
This is the behavior they try to take advantage of: analysts changing their estimates.
“What we’re focusing on is the anomaly around consensus estimate changes driving stock prices,” Florence told ThinkAdvisor. “We don’t try to predict what earnings are. What we try to analyze is how those changes in consensus estimates will move stock prices and at what magnitude will they move those stock prices.”
For example, Florence explained, if an analyst were to revise earnings on Apple that say “upward,” that drives stock prices. And analysts tend to move together collectively and follow “whoever has the highest pedigree,” according to Florence.
In order to exploit this behavior, BRC developed proprietary algorithms designed to monetize behavioral biases and market factors in order to pursue consistent alpha for client portfolios.