Model-to-portfolio correlation and long-only constraints

This interview is brought to you by Pictet Asset Management. To learn more about Pictet AI-Enhanced  International Equity ETF ($PQNT), click here: https://etf.am.pictet.com/pqnt/

To learn more about Pictet AI Enhanced US Equity ETF ($PQUS), click here: https://etf.am.pictet.com/pqus/ 

Jack Farley sits down with David Wright, co-head of Quantitative Investments at Pictet Asset Management, to  discuss the machine learning techniques his team uses in their $30 billion quant franchise, and the degree to  which AI has impacted serious quantitative investing. Wright explains why he prefers to utilize many decision trees and use gradient boosting rather than Generative AI to generate return forecasts, citing the need to avoid  "hallucinations" and ensure models remain interpretable. The conversation explores their sophisticated  investment process, which analyzes over 400 features, including accounting data, market trends, and analyst  sentiment, to predict relative stock performance over 20-day horizons. These strategies, which now are included  in new ETFs $PQNT (Pictet AI Enhanced International Equity ETF) and $PQUS (Pictet AI Enhanced US Equity  ETF) are designed as "passive replacements," aiming to maintain a Beta of 1.0 while aiming to deliver an  additional 1–2% annual outperformance over the relevant benchmarks, S&P 500 and MSCI EAFE indices. Finally,  Wright addresses the common "black box" misconception of quantitative finance, advocating instead for a "crystal  box" approach that provides full transparency into the economic rationale behind every trade. Recorded April 21,  2026.

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Definitions of terms used in the interview: 

1. S&P 500 Index 

The Standard & Poor’s 500 Index (S&P 500) is a market-capitalization-weighted index of 500 leading publicly  traded companies in the United States. It is widely regarded as the best single gauge of large-cap U.S. equities.  Because it is weighted by market value, larger companies have a greater impact on the index's performance than  smaller ones. 

2. MSCI EAFE Index 

The MSCI EAFE Index is a stock market index that tracks the performance of large- and mid-cap securities  across developed markets around the world, excluding the U.S. and Canada. The acronym stands for Europe,  Australasia, and the Far East. It is commonly used as a benchmark for international equity funds.

3. Alpha 

Alpha represents the "excess return" of an investment relative to the return of a benchmark index. It is a measure  of performance on a risk-adjusted basis. "Positive Alpha: indicates the investment outperformed its benchmark  after accounting for risk and "Negative Alpha" indicates the investment underperformed relative to the  benchmark. 

4. Beta 

Beta measures the volatility—or systematic risk—of a security or portfolio in comparison to the market as a whole  (usually the S&P 500, which has a Beta of 1.0) A Beta > 1.0 indicates the investment is more volatile than the  market (e.g., if the market rises 10%, the investment might rise 12%) A Beta < 1.0 indicates the investment is less  volatile than the market (e.g., if the market falls 10%, the investment might only fall 8%). 

5. Basis Points (bps) 

A Basis Point is a standard unit of measure for interest rates and other percentages in finance. One basis point is  equal to 1/100th of 1%, or 0.01%.