This is a sponsored article from Robeco.

What are the advantages of quant over fundamental? How do quant strategies respond to volatile market conditions? Quant experts answer key questions.

1. What are the advantages of quant strategies over fundamental?
   Quant investing at Robeco involves systematically identifying stock and company characteristics that explain differences in returns, such as value, quality, and momentum, as well as newer signals derived from alternative data sources like news flow and sentiment.

   Unlike human analysts working on fundamental strategies, quantitative models can analyse thousands of stocks at the same time, resulting in more diversified portfolios. This can be appealing to more active, risk-sensitive investors.

   Another difference is that a quantitative approach, given its use of rules-based methods, removes emotional biases from the process. In contrast, fundamental strategies rely on more qualitative analysis. They can be influenced by human emotions, such as holding onto losing positions or chasing gains due to the fear of missing out.

   Despite their differences, both approaches aim to uncover mispricing and capture value. Their relative performances tend to be uncorrelated, making it beneficial to combine both for balanced portfolio exposure and risk management.

   Figure 1: Correlation between active quant and fundamental strategies

   

   Figure 1 shows a 12-month rolling excess return/tracking error scatter plot for the quantitative Robeco QI Global Developed Markets Active Quant strategy, Robeco Global Stars (a global fundamental equities strategy) and combined (50/50) covering the period Jan-2012 to Feb-2025. The two strategies are uncorrelated, making it beneficial to combine both for a balanced portfolio and risk management. Source: Robeco Performance Measurement, as of February 2025.

2. How do quant strategies respond to volatile market conditions, given they rely on algorithms and equations?
   Robeco quant strategies leverage an in-house risk model to manage active risk. This risk model ensures broad strategy diversification and can weather volatile market conditions. Moreover, we have a proprietary distress risk indicator in place which acts as an overlay on the portfolio and prevents the model from taking positions in stocks close to default.

   These in-place models are purely statistical and therefore don’t suffer from any biases that humans might have in volatile markets. We have a human overview committee in place that can decide to overrule the model in circumstances in which the model is deemed unable to capture market circumstances. However, this is most often the exception, rather than the rule.

3. What should fund selectors look for when assessing a quant strategy?
   When assessing a quantitative strategy, fund selectors should be vigilant about several key factors. Green flags include a strong team with great tenure, state-of-the-art technical infrastructure, and transparency towards clients regarding the alpha model, research, and trades. These elements indicate a well-established and reliable strategy.

   Red flags to watch out for include abruptly changing investment philosophy during periods of underperformance, an investment process that cannot be explained to clients, and enhancing the alpha model without a robust economic rationale supporting such innovation. These issues can signal potential problems and a lack of consistency in the strategy.

   

4. Quant investing seems complicated and like a black box. Is it only meant for institutional investors?
   Robeco currently manages about EUR 86 billion in quant assets*, the majority of which are indeed managed for institutional investors, such as sovereign wealth funds and pension funds that appreciate Robeco’s quant strategies for their explainability, transparency and the robustness of the model.

   This challenges the common myth that quant is a complicated black box. We suspect this myth probably has more to do with some of the quant hedge funds or high-frequency trading funds.

   We are also seeing fund distributors or private wealth managers adopting quant strategies for a diverse range of purposes. For example, our enhanced indexing strategies are a well-regarded alternative to passive investing. With attractive fees, this product range aims to deliver the index plus additional returns while limiting active risk.

   Quant funds can also be used to target deep and enhanced exposure to proven market factors like value, momentum, quality and low volatility. These products have predictable characteristics and follow a consistent and predictable investment process.

5. What changes have AI and other technologies brought to the world of quant investing?
   There are exciting developments in AI-related research techniques such as machine learning and natural language processing. These advancements enable us to identify, test and capture subtle signals that traditional models still overlook. For example, we are augmenting our existing strategies and developing products with next-gen quant signals.

   These developments include gaining unique insights by tapping into alternative datasets. One example is our job momentum signal, which gauges a company’s health by tracking job vacancies.

   However, the dramatic increase in both the volume and variety of data available is both a blessing and a curse. Quants compare the wealth of data to a candy shop: all these new data sets look super exciting and have shiny packaging. But you cannot try to eat everything you see, as that would be bad for your (financial) health.

   Furthermore, when you critically assess it, you will find out that some data does not meet your quality standards, and that some data is just ‘old wine in new bottles.’ Our true edge lies in our ability to extract reliable signals from this vast sea of information.

   

6. How does Robeco set itself apart as a quant investor?
   Robeco boasts a 25-year track record in quant investing and has one of the largest teams in the industry, with over 50 researchers, portfolio managers, and client portfolio managers. A high percentage of their quant strategies are rated ‘High’ or ‘Above Average’ by Morningstar.

   Another unique point is that Robeco is not only a ‘quant house.’ The team can connect with the strong fundamental investment teams, who often also have quant experience. This fosters the exchange of ideas, where fundamental colleagues inspire new research ideas for the quant team and give feedback on them, while quant insights are considered in fundamental analyses.

7. What kind of quant strategies does Robeco offer?
   Robeco offers a range of quant strategies in equities, including active quant strategies which combine systematic investing with active flexibility in their aim to capture high, stable alpha in a risk-controlled, benchmark-aware manner.

Find out more about Robeco quant investing and our active quant strategies.
Active Quant: Finding alpha with confidence | Robeco Hong Kong
 

*As of December 2024

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Alpha refers to the excess return of an investment relative to a benchmark index and is a measure of performance.

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This is a sponsored article from Robeco.