Patience bolsters Sabr quant fund strategy

In an age where speed is often paramount, Muslim mathematicians Cheikh Fall and Mehdi Bennaceur are advocating patience with their quantitative strategy fund – for gains through a long-only investment approach.

The founders of the New York-domiciled Sabr Investment Technologies told IFN Investor that the fund – its Arabic ‘Sabr’ name stands for patience – seeks robust returns from the capital market without compromising Shariah principles.

The Sabr fund is hardly the first such Islamic offering – as Saudi-based Jadwa Investment, Ontario’s Mackenzie, Washington-domiciled Saturna Capital and New York’s BlackRock all had launched their own models of Shariah compliant quants.

At Sabr, the focus is on identifying long-only opportunities in Shariah-friendly stocks through trends that persist over months – not minutes. This mitigates the risk in investing for price appreciation, rather than investing on momentum. Also, the fund never attempts to short or gain from price depreciation.

"Traditional quant firms try to predict short-term patterns; it's essentially like a gambling mindset,” noted CEO Cheikh. This Islamic prohibition, rather than limiting Sabr, became its fund impetus, the former Wall Street quant operator said. He added that "even (in) the design of the (Sabr) model, Shariah compliance is used.”

Winning an underserved Muslim quant market

The prize for the patient, principled approach is winning support of the massive, underserved Muslim demographic. Sabr’s founders project that the global Islamic finance market, already worth trillions, will grow significantly in coming years, yet Shariah investments will remain largely untouched by advanced quantitative strategies.

The fund positions Sabr to capture "momentum across key markets" with a strategy that begins in North America, leveraging its financial sophistication, before expanding to Europe and eventually the MENA region. This mirrors the successful growth of other Shariah compliant businesses that first flourished in Western financial centers.

"If you look at the Shariah compliant investment opportunities today, it's mostly ETFs or mutual funds,” said Mehdi, the chief technology officer of Sabr. “Due to our quant nature, we are less correlated to the market and less correlated to the [ETFs] as well."

To enhance this approach, Cheikh and Mehdi are taking steps to avoid meandering in a crowded field – by adopting AI tools, particularly what they call "interpretable deep learning models". 

The commitment is vital for investor confidence and regulatory scrutiny, added Mehdi, who said the rigorous, automated monitoring system by Sabr is to ensure integrity and cleanliness of the vast datasets the AI tools process daily.

A bold gambit in transparency

In developing proprietary AI learning models, Sabr’s founders have a refreshingly open stance on transparency that contrasts with the often-secretive nature of quants. "If you truly have an edge, you should not be scared of talking about it," said Cheikh.

Echoing this, Mehdi draws parallels on how major tech companies openly share research without fear of losing their competitive advantage. This philosophy is reflected in Sabr's blog, where the fund shares insights into its methodologies, believing that its true edge lies in the depth of its continuous research rather than proprietary concealment.

But even as it shares knowledge, the "Sabr research" arm of their fund continuously looks out for "model decay", said the founders. Mehdi explained this is achieved by staying connected to the academic world and fostering an internal culture of ongoing innovation, to ensure their fund is not left behind.

Sabr’s monitoring systems are also designed to proactively detect early signs of underperformance or data drift in real-time – allowing for prompt diagnosis and remediation, often through backup models.

Staying alert for potential ‘black swans’

But while automation is central to its operations, Sabr acknowledges the indispensable role of human oversight, especially during unpredictable "black swan" events.

Cheikh stated plainly that "no model can predict everything." In such extreme cases, human intervention, supported by comprehensive real-time dashboards, guide critical decisions, such as reducing portfolio size.

“Traditional quant firms would hedge their positions because they can short stocks they don't own,” the CEO adds. “But as a Shariah compliant firm, we cannot short something we don't own. The way we're doing it is actually building models that handle the diversification by using math, essentially.”