How Best Styles can cultivate stronger investment harvests

Imagine a farmer overlooking his extensive fields, deciding what crops to plant for the next season. His decisions matter: some crops mature early, promise quick gains but are riskier, others take longer but are more dependable. The farmer knows that success isn’t found by luck. It is a result of planning, diversification, and the expert use of different tools.

Systematic investing works in a similar way. At Allianz Global Investors, our Best Styles strategy is built on these principles: make the right selection from a broad range of opportunities, manage risks carefully, and expertly use modern tools to ensure and improve results. Just as farmers don’t scatter seeds arbitrarily across their fields, we don’t select stocks randomly. We look for specific characteristics – what we call factors or investment styles – that have historically delivered better returns. These are our “seeds” and choosing them wisely is the first step toward a successful harvest.

Farmers know that not all crops command equal reward. Some are trendy “superfoods” with steep price tags while others are constantdemand everyday staples, and a few are gourmet delicacies only bought as a special treat. Similarly, in the stock market, companies have different characteristics usually looked for by different investors. To make this more tangible, think of superfoods as high-demand, fashionable crops, exciting but sometimes unpredictable in their development from seed to fruit. Staples are reliable crops that form the basis of every harvest and hence are widely available. Gourmet crops are rare and precious, requiring extra care but also offering higher rewards.

In investing, these categories translate into what we call factors or investment styles, the foundation of our Best Styles strategy. The “superfoods” resemble Trend stocks, which thrive when momentum or growth are strong. The “staples” are more like Value stocks: steady, dependable, and often underappreciated. And the “gourmet crops” mirror Quality stocks: financially robust and resilient, though harder to find.

For farmers, combining superfoods, staples, and gourmet crops improves both yield and income stability. Trendy crops can deliver high prices when demand peaks, staples provide
a reliable harvest and income, and gourmet crops command a premium from discerning buyers. Such a combination helps farmers level the ups and downs of market prices and weather conditions, ensuring that no single crop failure jeopardizes the entire season.

The same principle applies to investing. By blending Value, Trend, and Quality, we create portfolios that capture different sources of return and reduce dependency on one market condition. Trend can boost performance during steady markets, Value often shines when markets rotate amid improving fundamentals, and Quality provides some resilience during downturns. This diversification is at the heart of Best Styles. It’s a key ingredient for how we aim to deliver more consistent, long-term returns better than the market.

Think of factors as the DNA of a stock. They describe characteristics that tend to influence performance:

• Value: These are the “staple crops” of investing. They are solid, dependable, but often overlooked. Just like wheat, rice or potatoes, they may not be glamorous, but they provide essential ingredients for a healthy portfolio. Value stocks are inexpensive, offering the potential for reliable, long-term returns.
• Trend: These are the crops that thrive in the right season, have become popular and are rewarded when they are in high demand. Avocados, blueberries or kale have all enjoyed an increase in demand in recent times, due to their fashionable status as “superfoods”. In the world of investing, they are equivalent to companies riding on positive momentum, be it price movement, growth, or analyst forecasts. Like planting superfood crops, investing in trending stocks can generate high returns when the conditions are right.
• Quality: Some crops have been recognised for their exceptional taste for generations. These gourmet crops, such as truffles, artichokes or asparagus, are beloved by foodies and command high prices. Quality companies similarly enjoy a high reputation among their clients, because they typically have robust financial health, low debt, and stable
  earnings. They may require more effort to find, but they offer durability and reliability over time.

Academic research and decades of market data confirm that these factors have historically delivered meaningfully higher returns. In fact, over the period from 1995 to 2024, Value, Trend, and Quality each outperformed the broader market, and this is why we focus on them. They are the proven seeds for a successful investment harvest.

Diversifying across crops helps to achieve better and more consistent harvests. But farmers also have to protect against pests, drought, or storms. Likewise, investors must manage a variety of risks.

In Best Styles, we diversify across factors. We don’t just invest in Value, Trend, or Quality individually, but in a blend of all three. This approach smooths out performance because
different factors thrive under different market conditions. But we also diversify within each factor, selecting different varieties of these stocks to avoid specific risks and to capture the essence of the investment style – just like an apple orchard may contain Granny Smith, Golden Delicious and Gala cultivars.

This layered diversification, across and within factors, helps us build more resilient portfolios. It’s like planting different crops in different fields to ensure that if one fails, others will thrive. The result? A more stable and predictable investment outcome over time.

Farmers know that some crops complement each other. Planting beans alongside corn, for example, can improve soil health and yield. Similarly, in investing, combining different factors can create a portfolio that is stronger than the sum of its parts.

In Best Styles, we don’t just pick Value, Trend, and Quality in isolation. We blend them systematically. This combination reduces volatility and enhances consistency. When one factor underperforms, another often picks up the slack. It’s a strategy designed to weather the vagaries of the market, just as a well-diversified farm weathers changing seasons.

Modern farming has come a long way from ploughs and almanacs. Today, farmers use drones to watch crop health, satellite imagery to track soil moisture, and AI-driven sensors to
predict weather patterns and perfect irrigation. These tools allow them to plant at the optimal time, apply just the right amount of fertilizer, and detect pests before they spread, boosting yields and reducing waste. The result? Higher productivity, lower risk, and more consistent harvests.

Our investment process works in the same way. At AllianzGI, we use big data, advanced computing power, and artificial intelligence to analyse thousands of stocks across global markets. Just as precision farming finds the right crops, our models help our portfolio managers find stocks with the most attractive characteristics, Value, Trend, and Quality, while managing risk. AI helps us spot subtle patterns, tilt portfolios, and adapt to changing market conditions. We believe this systematic, tech-enabled approach improves efficiency and consistency, giving investors a better chance of achieving long-term success.

Our philosophy is simple: combine proven investment research with advanced technology and in-depth human expertise. Best Styles is not about chasing fads or making bold bets. It’s about systematically harvesting risk premia in a disciplined, diversified, risk-controlled way.

This approach has stood the test of time. With more than 25 years of successful factor investing and €77 billion in assets under management, Best Styles is a long-running and trusted strategy. We’ve navigated bull markets, bear markets, and everything in between always guided by the principles of diversification, discipline, and innovation.