Combination Strategies within Asset Management

Abstract

The application of quantitative and fundamental research in stock selection of fund management has mostly been used in separation. The goal of this thesis is to develop an investment strategy that uses both approaches simultaneously (a quantamental strategy) and show better results than either approach in isolation.

The thesis will test 9 approaches (models), a fund of funds, seven ways to implement a bottom up approach and a screening tool. The thesis will proxy the quantitative approach using five fundamental, technical and asset pricing factors, and proxy the fundamental approach by sell- side analysts’ recommendations.

The nine models will be backtested using 16 years of data from the 1000 largest US exchange traded companies. The thesis implements different performance measurements and tests the strategies using each approach as a benchmark, to research whether the quantamental strategy performs better than either approach on its own. The portfolio results show that the quantamental strategy outperforms either approach on its own. Both fund of funds and bottom up approaches mitigate the occurrence of high negative returns when using the quantitative approach only. The bottom up approach applied in various ways outperforms either approach in isolation, and the market portfolio. This suggests that a quantamental strategy as applied in this thesis would be a good investment strategy.