• Equities

The behavioural investment edge

Exploring the durability and replicability of investing edges.

1 minute read

Business and work concept. Businessmen miniature mini figures standing on chessboard thinking and face to white chess pieces

Investing is a pari-mutuel system where the gains are divided among the participants. Unlike casino gambling, which is a zero-sum game played against the house, active investors compete against each other. Therefore, an answer to the question, ‘what’s your edge?’ is pertinent. Market inefficiencies can be categorised into four buckets: technical, informational, analytical and behavioural.

If you can keep your head when all about you are losing theirs…

The best illustration of a technical inefficiency is spin-offs. Institutional investors occasionally receive de minimis quantities of stock in a restructured company that is generally a peripheral part of their investment thesis and eject the unwanted holding. They aren’t strictly forced sellers, but they are certainly less careful. However, spin-offs are also an example of the transitory nature of technical inefficiencies; they have flipped from outperforming to underperforming the index since the first coming to the market.1

Informational edges have also been subject to decay. Accounts of successful investors operating in the twentieth-century are replete with stories of chance management meetings and the strenuous effort involved in simply getting hold of company accounts.2 If markets can never be perfectly efficient because there are costs to gathering information, it is undeniable that thanks to the internet the cost of information such as annual reports, press releases, strategy presentations, conference call transcripts and management access is now readily available.

However, information requires analysis in order to separate what is merely interesting from what is truly important.  Analytical edges – asking different questions of the publicly available information and processing or weighing it differently to others – can be a source of advantage.  For example, we focus more on cash than earnings; we appraise the outlook for a company over the next decade not just the next quarter; we tune down macroeconomic prognostications. Unfortunately, even these points of differentiation are ultimately transitory.

Behavioural inefficiencies are the most interesting because they are systematically exploitable and not able to be arbitraged away as they become more widely known; people are not (yet) able to alter their psychology. Few investors think about thinking nearly as much as they scrutinise their performance. Various tweaks to otherwise common fund management practise include keeping diaries of our decision-making to mitigate hindsight bias; deactivation intra-day portfolio valuations because they are trivial; fostering concentration by having fewer screens on our desks; deactivating the historic book cost of investments to mitigate anchoring; and company analysis that purposefully seeks out disconfirming evidence.

Key risks

For further information on the risks and risk profiles of our funds, please refer to the relevant KIID and Prospectus.

The value of an investment and any income from it can go down as well as up and can fluctuate in response to changes in currency exchange rates. Investors may not get back the original amount invested.

Emerging markets risk

The fund invests in emerging markets; these markets may be volatile and carry higher risk than developed markets.

Derivatives risk

The fund uses derivatives; these can be complex and highly volatile. Derivatives may not perform as expected, which means the fund may suffer significant losses.

Illiquid securities risk

Certain assets held in the fund could, by nature, be hard to value or to sell at a desired time or at a price considered to be fair (especially in large quantities), and as a result their prices could be very volatile.

Concentration risk

The fund invests in a small portfolio of securities. Losses from a single investment may be more detrimental to the overall fund performance than if a larger number of investments were made.


  1. Invesco S&P Spin-Off ETF
  2. Alice Schroeder, ‘The Snowball: Warren Buffett and the Business of Life’, Bantam, 2009


Global equities in focus

Global Equity Endurance Fund

A strategy that offers a fresh approach to global equity investing.

Find out more

Need more information?

For further information, please contact our investment sales team.

Contact us

Important information


Except where stated as otherwise, the source of all information is Aviva Investors Global Services Limited (AIGSL). Unless stated otherwise any views and opinions are those of Aviva Investors. They should not be viewed as indicating any guarantee of return from an investment managed by Aviva Investors nor as advice of any nature. Information contained herein has been obtained from sources believed to be reliable, but has not been independently verified by Aviva Investors and is not guaranteed to be accurate. Past performance is not a guide to the future. The value of an investment and any income from it may go down as well as up and the investor may not get back the original amount invested. Nothing in this material, including any references to specific securities, assets classes and financial markets is intended to or should be construed as advice or recommendations of any nature. Some data shown are hypothetical or projected and may not come to pass as stated due to changes in market conditions and are not guarantees of future outcomes. This material is not a recommendation to sell or purchase any investment.

The information contained herein is for general guidance only. It is the responsibility of any person or persons in possession of this information to inform themselves of, and to observe, all applicable laws and regulations of any relevant jurisdiction. The information contained herein does not constitute an offer or solicitation to any person in any jurisdiction in which such offer or solicitation is not authorised or to any person to whom it would be unlawful to make such offer or solicitation.

In Europe, this document is issued by Aviva Investors Luxembourg S.A. Registered Office: 2 rue du Fort Bourbon, 1st Floor, 1249 Luxembourg. Supervised by Commission de Surveillance du Secteur Financier. An Aviva company. In the UK, this document is by Aviva Investors Global Services Limited. Registered in England No. 1151805. Registered Office: 80 Fenchurch Street, London, EC3M 4AE. Authorised and regulated by the Financial Conduct Authority. Firm Reference No. 119178. In Switzerland, this document is issued by Aviva Investors Schweiz GmbH.

In Singapore, this material is being circulated by way of an arrangement with Aviva Investors Asia Pte. Limited (AIAPL) for distribution to institutional investors only. Please note that AIAPL does not provide any independent research or analysis in the substance or preparation of this material. Recipients of this material are to contact AIAPL in respect of any matters arising from, or in connection with, this material. AIAPL, a company incorporated under the laws of Singapore with registration number 200813519W, holds a valid Capital Markets Services Licence to carry out fund management activities issued under the Securities and Futures Act (Singapore Statute Cap. 289) and Asian Exempt Financial Adviser for the purposes of the Financial Advisers Act (Singapore Statute Cap.110). Registered Office: 138 Market Street, #05-01 CapitaGreen, Singapore 048946.

In Australia, this material is being circulated by way of an arrangement with Aviva Investors Pacific Pty Ltd (AIPPL) for distribution to wholesale investors only. Please note that AIPPL does not provide any independent research or analysis in the substance or preparation of this material. Recipients of this material are to contact AIPPL in respect of any matters arising from, or in connection with, this material. AIPPL, a company incorporated under the laws of Australia with Australian Business No. 87 153 200 278 and Australian Company No. 153 200 278, holds an Australian Financial Services License (AFSL 411458) issued by the Australian Securities and Investments Commission. Business address: Level 27, 101 Collins Street, Melbourne, VIC 3000, Australia.

The name “Aviva Investors” as used in this material refers to the global organization of affiliated asset management businesses operating under the Aviva Investors name. Each Aviva investors’ affiliate is a subsidiary of Aviva plc, a publicly- traded multi-national financial services company headquartered in the United Kingdom.

Aviva Investors Canada, Inc. (“AIC”) is located in Toronto and is based within the North American region of the global organization of affiliated asset management businesses operating under the Aviva Investors name. AIC is registered with the Ontario Securities Commission as a commodity trading manager, exempt market dealer, portfolio manager and investment fund manager. AIC is also registered as an exempt market dealer and portfolio manager in each province of Canada and may also be registered as an investment fund manager in certain other applicable provinces.

Aviva Investors Americas LLC is a federally registered investment advisor with the U.S. Securities and Exchange Commission. Aviva Investors Americas is also a commodity trading advisor (“CTA”) registered with the Commodity Futures Trading Commission (“CFTC”) and is a member of the National Futures Association (“NFA”). AIA’s Form ADV Part 2A, which provides background information about the firm and its business practices, is available upon written request to: Compliance Department, 225 West Wacker Drive, Suite 2250, Chicago, IL 60606.