![]() ![]() Two strategies could use identical criteria but differ in how they use it. One team might use price/book, another might use price/earnings, and a third could use both. Quantitative strategies might choose different metrics within similar data. ![]() What are the ways these funds differentiate themselves? Satellite imaging or credit card data might contain consumer trend insights and help with estimating company sales, for instance. These slivers then become criteria in the model that screens securities.įinally, these strategies might use unstructured data, or variables outside of conventional financial analysis. Managers sift through a forest of data, seeking the slivers that best indicate outperformance. How does a quantitative fund choose its data and criteria? The aim is to minimize human judgment (and potential bias) when choosing stocks. A team hunts for the best inputs so a statistical model can spit out the most attractive ideas with these criteria. Quantitative investing has some creativity and flexibility, but it’s just in choosing, arranging, and replacing data and inputs, not in choosing the actual stocks. While these approaches surely contain some rigid elements, humans make the final call, which embeds a qualitative flexibility in the decision-making process. Quantitative investing is an investment process in which securities are chosen based on defined rules.Ĭonventional active management involves a team doing security-specific research: modeling company financials, comparing industry peers, and assessing competitive advantages in picking the best stocks. ![]()
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