In its simplest form, quantitative investing is a decision-making process where every concept is expressed as a number. The practice of quantitative investing is tied to technological advancement as the 1970’s brought computers into the industry. Quantitative research has multiple applications; including identifying favorable stock characteristics and screening a universe of companies to quickly identify which companies meet these objectives, combining securities into an optimally diversified portfolio and risk management. Investment managers use quantitative methods in varying degrees as some use these tools as a part of their approach and others use these methods as an automated decision-making process.
Fundamental investing, as previously defined, focuses on assessing a wide variety of macro and micro variables that impact the economics of a business. Quantitative and fundamental investing is frequently referred to as apposing approaches. We disagree. Quantitative investing is often simply a formulaic combination of fundamental criteria. Qualitative investing, on the other hand, is where research is less rigidly structured and key variables are more customized to fit the idiosyncrasies of a specific investment. This is more the “flip-side” of a quantitative approach.
Meritage’s approach to security research is highly quantitative; however our process is not a black box (automated) process. Rather, we overlay qualitative judgment in making final decisions regarding all aspects of portfolio construction.