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Winning at Active Management by John Keefe, Michael A. Welhoelter, Steven D. Bleiberg, William W. Priest

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Chapter 14 Racing with the Machine

Investing Is Too Important for Robots Alone

We noted in Chapter 8 that among active equity managers in the United States, about one-sixth considered their investment styles to be heavily quantitative—that is, selecting securities for their portfolios from preset rules based on company and market history, typically carried out by computers screening thousands of stocks. Quantitative strategies have delivered solid returns, given the right market climate: as a general rule, quant approaches outperform fundamental managers in market regimes of low to moderate volatility in returns, and, most important, when the future turns out to be similar to the past.

But in more dynamic markets, such as the weakness following the tech bubble (1999 through 2001) and surrounding the global financial crisis (2007 through 2009), fundamental strategies tend to see better relative results.1 That advantage stands to reason, as fundamental portfolio managers may have greater flexibility in reacting to turns in the market, as well as anticipating market moves with informed forecasts.

Thus, the two contrasting methodologies develop insights that complement each other, and Epoch believes that combining them can result in better-informed judgments. The holy grail of investing may be the realization that there is no holy grail.

As a result, Epoch’s investment strategies feature varying mixes of fundamental and quantitative methodologies. Most of our strategies lean more ...

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