The rise of “Quantamental”

To date, equity-focused hedge fund strategies continue to be the most predominant among new launches and funds in general.  However, among them, quantitative strategies appear to be the most-sought strategy by investors.

Maybe you have already heard the term “quantamental.” The discussion around the method of using artificial intelligence and data science to process large amounts of data that is beyond human scope has gained popularity in the past year. In fact, in March of 2017 Blackrock announced shifting $30 billion of its fundamental allocations to the quantamental strategy.

If you have yet to hear the term quantamental, you almost certainly have heard about the rise of the quant fund, the rise of AI, and the rise of the machine. How will this ‘shake-up’ the industry? Will AI replace humans at funds?

In short, the answer is no. While, indeed, quantitative strategies have seen a pop this year in terms of receiving allocations as well as new launches employing this strategy, in my experience, there is almost always a fundamental or discretionary overlay involved. Therefore, the rise of the quantamental strategy – which is the combination of the bottom-up fundamental stock picking approach married to the computing power of artificial intelligence to analyze large data sets and use of algorithms – will continue to be offset/monitored/etc. by an experienced, human hand.  Ultimately, while machine may always beat man, man and machine are a more lethal duo.