Combining qualitative and quantitative approaches
There are different ways to generate investment insights. The manager universe can be segmented into two broad approaches: qualitative management and quantitative management. Each has its own strengths and weaknesses.
A qualitative approach depends on a manager’s assessment of the intrinsic value of a share based on a range of factors, such as, forecasted sales growth, profit margins, capital requirements, business risk, capital structure and the relative value of the company. As such, qualitative analysis is inherently forward-looking.
A quantitative manager aims to generate excess returns by analysing historical data for trends and patterns that have provided profit opportunities over time. In this sense, quantitative management is a systematic and repeatable process.
Markets, however, are inherently dynamic and what worked yesterday is not guaranteed to work tomorrow. Quantitative managers must therefore dedicate time and resources testing their investment insights to ensure they are capturing true and sustainable insights.
We believe a manager that can apply both a qualitative and quantitative approach is better-positioned to deliver stable outcomes to clients. Utilising both approaches delivers real synergies. The different insights generated provide diversification benefits to clients. Quantitative models depend on quality data. A qualitative team can provide context around the numbers. Qualitative managers can also do the on-the-ground due diligence required in less well-researched areas of the market. Likewise, a quantitative process can impose stricter risk management and analysis of investment decisions on qualitative ideas.
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