#Quantamental strategy: does it really combine #quant and #fundamental strategies’ respective strengths?

Quantitative and fundamental analyses were thought to be mutually exclusive. However, now there is a new strategy gradually emerging and it’s name is “Quantamental”.

A few days ago, Morgan Stanley’s equity strategy team published their list of five most favored and five least favored growth stocks based on their "quantamental" model. Team leader Adam Parker explains that when a Morgan Stanley analyst has fundamental conviction on a stock and our quantitative models agree, the subsequent performance is superior to either discipline alone.

The reason why these two distinct analytical styles can be combined is that both quantitative and fundamental analysts basically utilize similar factors, like price to earnings multiple, past performance of the security, market cap of the security, the firm’s sector classification etc. Hence based on the fully-developed, mature fundamental analysis, quantitative models are also to further strength of discipline and optimize outcomes.

Sometimes, they can also be combined to fully explore certain markets. Some ex-wall street bankers are trying to bring quantitative models to China’s stock market. But in a market where intraday selling is not yet allowed and limitation of pricing data is severe, these ambitious quant managers might have to borrow some more fundamental analytics.

At the very least, quant manager can examine their models from different angles using fundamental analytical patterns. Mr. James Norman of QS Investors will be presenting at the Quant Invest Chicago 2012 event and discuss if a top-down, macro oriented approach produces more consistent returns than bottom-up stock selection.