July 30, 2014

Financial Engineering Graduate Dave Klein Wins Major Investment Research Award

Dave Klein, a 2006 graduate of the Berkeley Master of Financial Engineering Program, is the 2013 first-place winner of the prestigious National Association of Active Investment Managers (NAAIM) Wagner Award for Advances in Active Management for his paper “Equity Sector Rotation via Credit Relative Value.” 

The five-year-old Wagner Award is designed to expand awareness of active investment management techniques and the results of active strategies through the publication of research on active management versus buy-and-hold investing. As the winner, Klein will receive $10,000 and will present his results at the NAAIM’s annual conference in Denver, Colo.

Klein’s paper develops an investment strategy that rotates among sectors based on how the credit market and the stock market interact. The strategy pairs equity index exchange-traded funds (ETFs) with a high-yield credit index to make a tactical asset allocation decision (or one that actively adjusts a portfolio’s asset allocation) to outperform the benchmark while managing risk. The pairing of the index ETFs with a high-yield credit index is a fairly novel approach in the investment arena.

"The paper lays out an investment strategy that uses information from the credit market to make equity sector investment decisions, and the strategy uses the same information to do tactical asset allocation—to decide whether to be in equities or bonds," explains Klein. "We talk about how to rank sectors, and once we rank the sectors, we discuss how to decide whether to invest in the sector ETF or to invest in a bond ETF.”

After completing his MFE at Berkeley-Haas, Klein became a senior research analyst at Credit Derivatives Research and has been regularly interviewed by the media as a credit derivative market expert. Most recently, he became a partner and co-founder of Capital Context, a market strategy consultancy.  Capital Context offers individual investors a decision-making toolkit previously only available to sophisticated Wall Street and hedge fund investors. 

Prior to the MFE Program, Klein worked in the software industry for 14 years and has a mathematics background. "The MFE allowed me to combine my technical background with my quantitative interests and refocus my career more on the quantitative end than the technical end," he says. "The program gave me exposure and background in quantitative finance and allowed me to move into credit market research."

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