Quantamental investing (QI) is a new approach to investing where the results from machine learning and artificial intelligence are used by human traders to improve fund performance. QI is a hybrid trading approach that tries to combine the best of both worlds: quantitative research with human judgement.
On this page, we define where the term’s origination, explain the QI approach, and discuss some examples of hedge funds that use QI.
The word quantamental is a contraction of the words quantitative and fundamental. Quantitative refers to the fact that a quantamental approach will rely heavily on machine learning and artificial intelligence to analyze vast amounts of data. The data can be used, for example, to identify an attractive set of stocks that are promising based on a number of criteria. These criteria are typically fundamental criteria. This explains the second word contained in quantamental; fundamental.
Thus, the QI approach mainly refers to the use of quantitative approaches for analyzing and selecting companies based on fundamentals. But this is nothing new, right? Quantitative fundamentals-based funds have already been around a couple of years? So how is this different from these existing approaches?
The answer is that, instead of using a fully automated approach, a QI approach does not use the results directly to select securities. Instead, the quantamental approach is implemented by traditionally discretionary traders that want to use recent advances in machine learning to improve their performance. Thus, the QI is mainly adopted by discretionary hedge funds that try to improve their stock selection by incorporating quantitative approaches.
Thus, a better way to view QI is as a kind of research. Thus, the use of quantitative approaches to improve existing discretionary research by analysts.
Who uses Quantamental investing?
QI is still in its early stages and is mainly used by hedge funds. Some notable hedge fund using a QI approach are Point72, Third Point, Tudor Investment Corp, as well as more traditional asset managers such as Blackrock.
QI is becoming increasingly important for discretionary managers to improve their stock picking performance. While it is still in its infancy, the approach is quickly gaining traction. It differs from quantitative investing in that it is an input in the existing fundamental approach that many analysts use.