Quantamental investing blends objective quantitative modelling with in-depth fundamental research. Learn below how this process seeks to provide clients with the best of both investing approaches.
Quantamental investing has two primary benefits:
- Blending the skills of quantitative and fundamental investing styles creates a quantamental approach. This produces enhanced insights that can be applied consistently, efficiently and at scale.
- The modelling capabilities of a quantamental approach can simultaneously capture and process the ever-growing influx of data from multiple sources and thereby highlight investment insights that might otherwise be missed.
Same aim, different strengths and weaknesses
Investors face an unprecedented deluge of data. For example, it is estimated that 90% of all the data in the world was generated in just the last two years. As a result, we believe it is vital that any investment approach incorporates both quantitative and fundamental inputs.
Quantitative and fundamental investing both ultimately seek to generate excess returns for investors. However, both styles have distinct strengths and weaknesses. Combining the two techniques can minimise the inherent weaknesses of each approach and highlight the strengths to generate more meaningful investment insights and outcomes.
Quantitative investing uses mathematical modelling and computer systems to manage a vast number of potentially complex data sources. There are thousands of data sets available from government, finance firms, economic organisations, social media and environmental, social and governance (‘ESG') bodies. Combining all these data streams requires a variety of analytical and visualisation techniques to identify consistent patterns and deviations from historical trends.
Fundamental investing is based on in-depth knowledge of securities and their industry dynamics. The objective is to determine a stock's value by forecasting company cash flows and applying an appropriate discount rate. These forecasts use assumptions about a firm's business strategy, competitive position, pricing power and the degree of industry concentration. Fundamental analysis can reveal in-depth insights but can be time-consuming.
Greater than the sum of the parts
Machines are integral to processing the vast array of information that investors face today. Human skill and insights are equally vital to make sense of the data and prevent ‘black box' solutions that may contain little economic rationale.
In our view, we need to build practical systems that combine quantitative and fundamental insights - a quantamental approach to investing. This gives us a better chance of identifying stock-specific alpha than investing using quantitative or fundamental techniques alone.
How quantamental investing works in practice
Quantamental investing draws on quantitative finance, data science and in-depth fundamental analysis. There is no definitive approach although what is commonly seen is one phase of either quantitative or fundamental research informing the next, and vice versa, to create a continuous feedback loop.
We have created our own methodology to execute quantamental investing. This incorporates our philosophy of focusing on the highest-quality companies with the most attractive ESG prospects. Our quantamental process draws on many data sources and analyses millions of data points that impact our investment universe of over 15,000 stocks.
On a practical level, this allows the investment team to swiftly and effectively identify securities of greatest potential interest for more detailed analysis. We seek the best of both investing worlds for our clients by integrating the study of company business models, risks and opportunities into our quantitative models. This creates a virtuous circle that is the essence of quantamental investing.
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