Over the last ten years, active managers have found it increasingly difficult to beat benchmarks. It’s arguable that the markets have become harder to outperform, due to everyone having all of the information all of the time. Larry Fink, BlackRock CEO described it well in the New York Times back in March 2017:
“The democratisation of information has made it much harder for active management”. “We have to change the ecosystem—that means relying more on big data, artificial intelligence, factors and models within quant and traditional investment strategies.”
What Larry Fink is describing here is both the problem and the solution. Yes, the democratisation of information has made it far harder for active managers to have an “edge” over one other. In order to regain this edge, models that constantly analyse vast amounts of data and distil it into useable information could be the way forward. If you take select metrics from individual stocks, for example Sales, EBITDA, Earnings, Cash Flow & Book Value, and input these into a quantitative model that will analyse select stocks against these criteria, you will have a powerful information set.
You can then take this fundamental analysis and combine it with quantitative factor assessment. This type of investment has now broadly come to be known as Quantamental Investing.
Factor based-quantitative investing is being seen as the investment strategy of the future, because these strategies have delivered excess returns. Research from Morningstar shows that, over the past 20 years, broad market factors—such as valuation, growth, quality and momentum— have driven about 65% of a global equity manager’s relative returns.
Cube Capital offer a Quantitative/Quantamental strategy