At Resonant, we are firm proponents of Quantamental Investing.
Quantamental Investing combines both fundamental and quantitative techniques, in order to achieve a “best of both worlds” approach to investing.
By blending quantitative factor-based research with more traditional stock-specific research, clients can benefit from two strategies to generate alpha. Specifically, the approach allows for human judgement to handle qualitative inputs and non-linear market dynamics, while automating processes that benefit from a more systematic approach, particularly those subject to human biases. In addition, typically the two approaches are most effective at different points in the cycle and on different investment time horizons, so combining them makes consistent alpha delivery more achievable.
Medium and Long Term
Resonant focuses on relative and absolute valuation, industry structure, management quality and multi-year forward earnings profile and guidance to determine the attractiveness or otherwise of an investment over a longer term horizon (12+ months, up to 5 years). These stock specific fundamental drivers of relative attractiveness can take time to play out, but we believe that in the long run share price is determined predominately by these factors.
Resonant focuses on changes in fundamental forecasts and operating metrics, and stock price dynamics, to determine the attractiveness of an investment over a shorter term horizon (between 3 and 12 months). In addition, Resonant will favour factors over the short term that are consistent with the macro-economic regime and market risk environment, when putting together the investment portfolio.
Weighting the Portfolio
Stocks are weighted on the basis of their risk and return contributions, their correlations with other assets in the portfolio, and their liquidity, in order to give us the optimal risk return trade off. Both human judgement and algorithms are incorporated into this process.
Resonant is cognisant that it is after-tax returns that are particularly important to retail investors, hence the portfolios are managed with this in mind. Transaction costs and the market impact of investment decisions are also taken into account.