Fundamental and Quantitative Portfolio Management Disciplines Combined in Morgan Stanley Quant

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By Jacob Maslow

Morgan Stanley (NYSE:MS) is in the process of surveying quantitative investment techniques. The company’s Quant Research team has weighed in on the effectiveness of unstated investing. Quantitative market participants, especially in managed future sectors, are held at a very high standard in the industry.

Returns are relatively equal with long-only equity hedge funds retaining assets even during negative performance periods. Adam S. Parker, the head of the company’s research team in the United States, states that the best approach is based on “quantamental.” This approach combines fundamental and quantitative practices for best results.

The researcher believes that factor exposure and quantitative fundamental information need to be utilized together as a new signal for investors.

Morgan Stanley will use quantitative investing in an effort to choose stocks on a more statistical level. Integrated quantitative and fundamental approaches into the company can be done in a variety of ways. The first way that is being approached by the company is to increase the fundamental portfolio’s risk adjustment return based on a quant factor.

Fundamental research will be utilized as a filter, where quantitative rankings will be put into the mix for stock picks. According to the report from Parker, nearly all portfolios are recommended to use the quantitative method as the best strategy for picking stocks.

The research lead by Adam Parker also indicates that unskilled managers would be able to use quantitative disciplines to reduce idiosyncratic risk. This method is best utilized for concentrated portfolios wherein a quant basket is the superior approach. Skilled managers will have see better overall results by removing and screening stocks when a diversified portfolio is in place.

Quant factor exposure, when added into a portfolio, can help portfolio managers effectively rank stocks and remove poor-ranking stocks effectively. Quantitative portfolio management allows investors to utilize risk-adjusted returns appropriately. A ratio of average return to volatility is maximized so that investors can diversify their portfolio with maximization as a key factor for growth.

Morgan Stanley’s report had the objective of adding in a quant factor to portfolios to screen out stocks that would underperform. Return enhancing strategies are being researched and implemented with large financial institutes as well as small investors. Quant strategies are a form of cost-effective risk management in an effort to hedge downside volatility. Adjustments and long and short ratios along with quantitative triggers is an advanced, smart way to invest in the market.

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