OASIS Financial

How do you use the NCA in an investment process?
For the portfolio manager considering the purchase of a corporate bond for the portfolio there is a vast spectrum of candidates from which to select. Even after narrowing the spectrum by specifying the maturity ranges, the yields and the ratings of the bonds the candidates are extensive. A naive approach would take the remaining candidates and rank them by their ratings and then by their spreads to provide a rank ordering of the attractiveness of the investments. This naive approach results in the manager frequently purchasing those bonds that are trading wide relative to their "ratings" and ignoring other bonds that are trading narrower than their "ratings". For those bonds trading wider than their ratings warrant, the question remains of whether the spread reflects the risk of the bonds being downgraded.

For example a weak "BBB- " trading 15 basis points wider than the average "BBB-" all other things being equal would be an attractive investment. But if the wider trading bond has a significantly higher chance of being downgraded to high yield, then the 15 basis points may not fully reflect the risk and turn out to be a poor performing investment. The opposite case is also true were the manager neglects the bonds trading narrower than the average ratings results in poor performance in those cases were the narrower spread didn't reflect the full narrowing that will occur from upgrades.

Certainly no investment manager uses the naive approach to selecting investments, but what separates the average investment manger from the top performers are the tools and techniques that they use to identify a rich bond from a cheap bond. The Neural Credit Assistant can play a critical role in the identification. The Neural Credit Assistant provides a consistent quantitative score to measure the credit trends of each company and across companies. It allows the portfolio manager/analyst to identify credits that have significantly improved/or deteriorated before the rating agencies and the market has taken action. The NCA tends to be a leading indicator of the trend of the credit as early as two years prior to the ultimate rating change. Over the last four years the system has correctly identified 74% of the upgrades and 65% of the downgrades. This predictive capability combined with a manager's investment knowledge and experience provides a significant advantage in the investment process.

How often is the data updated?
The data for the NCA is updated on a weekly basis to reflect companies reporting new financials, new companies and rating changes. To get the latest data update go to the Update Section of the NCA and download the latest data. Download that file to your computer and then unzip it into your NCA subdirectory. As the NCA is loading it will display the date that your data was last updated.