Are Quant Strategies Poised to Replace Fundamental Managers?

February 10, 2017

As 2016 performance trickled in, the depth and prevalence of underperformance became very apparent. What made 2016 such a particularly difficult year for active management? Many have cited the tumultuous events throughout the year ranging from the market dip and subsequent recovery in the first quarter, to the Brexit, to the unexpected Trump victory. Rapidly reacting and adapting to these market changes — let alone capturing any alpha — was incredibly challenging.

Notably, quantitative strategies seemed to have an easier time reacting to these events than fundamental strategies. Quantitative, or “quant,” strategies rely heavily on statistical and mathematical screens and indicators which largely remove human emotion and judgment from the equation. These models arguably enabled portfolios to recognize the surprise market events of 2016 and adapt much more quickly than fundamental strategies. However, while quant strategies largely proved successful relative to their fundamental counterparts in 2016 during an array of smaller disruptive events, this pattern is not proven to hold during severe inflection points.

The opinions expressed herein are those of Marquette Associates, Inc. (“Marquette”), and are subject to change without notice. This material is not financial advice or an offer to purchase or sell any product. Marquette reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs.

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