Playing The Long Game: The Fundamentals Arm
By Nadine Yip
When does sustainability play a role in trading?
Most trading on QTE moves fast. The Fundamentals Arm does not. While other arms chase short-term volatility, Fundamentals teams slow the pace, building conviction and holding positions with the goal of outperforming the market.
Each Fundamentals team operates as a hedge fund pod with eight students. The Portfolio Manager leads the desk, making final decisions on strategy, risk parameters, and capital allocation. Six Fundamentals Analysts dig deep into company data, debate opportunities and craft investment theses. One Risk Analyst monitors portfolio exposures and flags any breaches of risk limits to the Portfolio Manager.
Performance is assessed on a risk-adjusted basis, with the Sharpe ratio as the principal metric. Dashboards tracks data like current holdings, position performance, portfolio weights, unrealised and realised P&L, cash allocation and volatility metrics. This means every decision is a test of consistency rather than luck.
Teams invest in the long-term with time horizons of over a year and starting capital to invest across a curated list of US equities and ETFs. Positions can be exited if the underlying thesis deteriorates or is invalidated by new information. Though portfolio is driven by conviction, adaptability keeps it alive.
Portfolio managers determine their team’s risk parameters. However, one rule is universal: no single position may exceed 20% of their total portfolio value at the time of execution.
Before an order is passed to the execution team, the investment idea must go through an internal approval process. An analyst first identifies potential opportunities and pitches it to the team. Then, the team works together to further research the security to determine and quantify associated risks, building a formal investment thesis. Finally, the portfolio manager signs off, passing the trade to the Execution Arm.
Through the fundamentals arm, students get to experience hedge fund style trading. Researching, developing and executing large trades with the aim of beating the market over time.