Myth: Quantitative managers use ‘black box’ processes, with decisions made by machines, and they lack conviction & accountability
Reality: Human judgement is used heavily in the design/implementation, ongoing monitoring, and revision of active quantitative strategies. The investment manager is completely accountable for achieving risk/return targets.
Quantitative managers rely on ‘process’ to generate excess returns – applying the same signals across a set of comparable stocks, while fundamental managers may rely much more on single-stock ‘stories’. However, good stories can lead to analysts becoming overly attached to a particular aspect of a company that may/may-not be priced-in already.
One of the key difference is a quantitative manager’s greater focus on achieving behavioral advantages, versus a fundamental manager’s greater focus on achieving analytical advantages (through a deeper focus on the unquantifiable).
To learn more, read Part 1 of this series: Comparing and Contrasting