Investment dividing line blurring
May 17, 2018

The line between fundamental and quantitative investing is blurring as fundamental investors adopt tools and approaches long employed by "quants", according to a new report, The Benefits and Future of Quantitative Investing, from Greenwich Associates.

Greenwich Associates says the report shows that quantitative tools are creating new opportunities for nearly all market participants, not only sophisticated hedge funds with teams of physicists and data scientists, but also for more traditional managers. For example, fundamental managers are using machine learning to analyze earnings statements and examine market moves based on past company or macroeconomic news.

"Models that can truly learn from their actions and the reactions of the markets without any human intervention could result in the creation of a whole new category of investing," says Kevin McPartland, Head of Greenwich Associates Market Structure and Technology Research and author of the new report.

Even passively invested index-tracking funds are discovering uses for quantitatively driven technology, and billions of retail investment dollars are already flowing into "robo-advisors", a clear example of quantitative modeling.

Benefits of Quant Strategies

Quantitative investors bring benefits to the market beyond the technology they helped to pioneer.

Quant funds have become essential liquidity providers. "If all of the quant funds in the world stopped trading tomorrow, broker-dealers and long-only investors alike would be scrambling to get orders filled," says McPartland.

Many quant funds are constantly searching for slight price abnormalities, keeping the market efficient and price correlations in check.

Finally, and perhaps most importantly, quant funds provide much-needed diversity to the global investor base. "Price targets might differ but, by and large, sentiment at a macro level is often aligned across firms," says McPartland.

"Without an opposing view – which is often the role of the quant investor – the market will lean in the same direction, limiting sellers or buyers when either is desperately needed."

 





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The line between fundamental and quantitative investing is blurring as fundamental investors adopt tools and approaches long employed by "quants", according to a new report, The Benefits and Future of Quantitative Investing, from Greenwich Associates.

Greenwich Associates says the report shows that quantitative tools are creating new opportunities for nearly all market participants, not only sophisticated hedge funds with teams of physicists and data scientists, but also for more traditional managers. For example, fundamental managers are using machine learning to analyze earnings statements and examine market moves based on past company or macroeconomic news.

"Models that can truly learn from their actions and the reactions of the markets without any human intervention could result in the creation of a whole new category of investing," says Kevin McPartland, Head of Greenwich Associates Market Structure and Technology Research and author of the new report.

Even passively invested index-tracking funds are discovering uses for quantitatively driven technology, and billions of retail investment dollars are already flowing into "robo-advisors", a clear example of quantitative modeling.

Benefits of Quant Strategies

Quantitative investors bring benefits to the market beyond the technology they helped to pioneer.

Quant funds have become essential liquidity providers. "If all of the quant funds in the world stopped trading tomorrow, broker-dealers and long-only investors alike would be scrambling to get orders filled," says McPartland.

Many quant funds are constantly searching for slight price abnormalities, keeping the market efficient and price correlations in check.

Finally, and perhaps most importantly, quant funds provide much-needed diversity to the global investor base. "Price targets might differ but, by and large, sentiment at a macro level is often aligned across firms," says McPartland.

"Without an opposing view – which is often the role of the quant investor – the market will lean in the same direction, limiting sellers or buyers when either is desperately needed."

 



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