Bridging the fundamental-quant divide

MOST large active fund managers today have both fundamental and quantitative investment teams. Historically, these two groups have sat in separate silos, and for good reason. They have different approaches to the investment process and speak a different day-to-day language.

The root of the divide is their respective educational foundations. Fundamental investors study economics and learn a bottom-up investment process that seeks to identify the future value of a single stock. Quants learn mathematics and engineering and take a top-down approach to investment decision making that starts with a vast quantity of market data.

Yet fundamental investors have begun to incorporate more quantitative screens and models into their fundamental research as relevant data becomes ever more accessible and data science tools more user-friendly. Most fundamental investors today have at least one usually spreadsheet-based quant screen — aimed at flagging valuation mismatches, environmental, social, and governance (ESG) scores, and the like — that influences their investment process. Some have many screens — and a resident quant analyst sitting next to them.