What is the value of combining the objectivity of quantitative analysis with the subjective, human judgment involved in fundamental analysis? A broader opportunity set, greater levels of conviction and potentially increased efficiency. It is somewhat like the use of "cobots" — collaborative robots that work alongside people in manufacturing facilities. In a study conducted by MIT researchers at a BMW factory, teaming cobots with human workers reduced the workers’ idle time by 85%.[1] The machines, or in the case of investment management, the quantitative models, can quickly parse through massive amounts of data, which helps identify opportunities and risk. However, models and machines often lack the flexibility or insight of their human counterparts to arrive at the best decisions. Combining fundamental analysis, which tends to perform better in volatile markets and around inflection points, with quantitative analysis, which can take advantage of the persistence of factor returns in trending markets, creates a portfolio that can potentially navigate a wide range of market environments.


Some investment managers caught on years ago. Earlier this month, however, Barron's pointed to an increase in the tendency for active managers to combine quantitative insights with fundamental investing primarily as a way to improve performance and/or cut costs.[2]


Our capability came from a very different perspective. It was forward-thinking product development, not frustration with active performance. We believe investors will always want to pursue alpha, and in a low-return environment, they are likely to need it. Through blended research, we have found an opportunity to deploy our fundamental active skill in a way that can potentially address certain investment objectives and provide cost effective, actively managed solutions not found in traditional investment approaches.


Why offer both blended and fundamental active capabilities? In our view, a blended research capability co-exists very sensibly with our active fundamental strategies because it brings something different to the table. Certainly the systematic combination of two independent stock evaluation processes — fundamental and quantitative research — brings complementary strengths to bear in the pursuit of risk-adjusted returns, especially for those investors facing shorter-term demands and tighter benchmark constraints. But for investors with longer time horizons and more investment flexibility, more traditional fundamental active strategies — with typically higher levels of active risk and alpha generation through a market cycle — are often the better fit.


After more than 90 years as active managers, there is no question that we are committed to our craft. We still believe active management is the best way to help clients meet their long-term goals. The days of a one-size-fits-all approach to investment management are likely over. Those managers that are able to match the right investment approach to the needs of each individual investor will be better positioned to deliver the outcomes clients deserve.


[1] MIT Technology Review, Vol. 117, No. 6, "Breakthrough Factories," 2016

[2] "Stockpickers make room for the quants," Barron's, April 1, 2017



The views expressed are those of Joseph Flaherty and are subject to change at any time. These views should not be relied upon as investment advice, as securities recommendations, or as an indication of trading intent on behalf of any other MFS investment product.


This content is directed at investment professionals only.