Quantitative vs. Fundamental Analysis in Institutional Money Management: Where's the Beef?

Abstract

In the money management industry, there is a "quiet" controversy over who does a better job, Traditional Managers (Fundamentalists), or Quantitative Managers. This issue has been examined by Gruber (1996), and Pastor and Stambaugh (2003) and more recently by Zhao (2006) and Wermers, Yao and Zhao (2007) using mutual fund portfolios. We reexamine this issue using the Plan Sponsor Network Database (PSN), a survivorship free database, which reports on how managers actually manage investment portfolios with respect to both style and types of stock selection methods used. Our empirical results indicate that when examining performance purely attributable to the use of a distinct Primary Investment Process, only the Fundamental approach is shown to significantly add value. However, when examining marginal performance of a Secondary Process, over and above a Primary approach, no process adds value, and in fact some detract.

Keywords: Mutual Funds, Quantitative, Fundamental

JEL Classification: G11, G12, G23