Actively managed investment funds bring the expertise of professional portfolio management to the masses. So, how do the stock pickers of equity funds decide where to invest their clients’ money?

Well, it depends on the fund, but many of the approaches fall into two categories: traditional human-led bottom-up investing and the wide spectrum of algorithm-led quantitative styles.

While many quant funds seek to trade at the speed of light, or use statistical arbitrage to leverage their computing power, others use fundamental decision-making tactics similar to traditional bottom-up funds, but with the added power of AI or machine learning and algorithmic data processing. 

Daniel Mahr: Fundamentally driven quant funds are really just, at the end of the day, a rules-based expression of human decision making… 

So, what’s the difference between these two styles? And how do they compare throughout the portfolio life cycle? 

Daniel Mahr: A fundamental quant is one that uses a lot of the same tools as a traditional portfolio manager in terms of evaluating opportunities for the portfolio, but where the implementation is done through a systematic process informed by data.

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