Trends Watch: Fundamental & Quantitative Investing

EisnerAmper’s Trends Watch is a weekly entry to our Alternative Investments Intelligence blog, featuring the views and insights of executives from alternative investment firms. If you’re interested in being featured, please contact Elana Margulies-Snyderman.  

 This week, Elana talks with Frank Fu, Founder & Portfolio Manager, CaaS Capital.

What is your outlook for fundamental and quantitative investing? 

The boundary between fundamental and quantitative investing has blurred and will continue to do so in the future. Fundamental managers nowadays are well aware of their factor exposure, either due to investor inquiries, risk management, or alpha attrition. On the other hand, quantitative managers are increasingly performing analyses using data that was once exclusive to human analysts, owing to increasingly extensive data availability. I believe investors won’t use “fundamental” or “quantitative” to distinguish a manager in the future, as the intrinsic philosophies and methodologies of each will merge, overlap and ultimately be ingrained within each other. We believe that successful managers will have a team comprised of fundamental analysts and quantitative researchers, as both types can continue to benefit from working alongside each other to implement differentiated investment strategies.

What are the greatest opportunities you see and why?

The equity capital market (ECM) has been mostly closed for almost a year now. IPO issuance volume in 2022 is about 95% below 2021 levels. There are a lot of companies who are looking to list as soon as the window re-opens for them.

We are also seeing tremendous opportunities in China’s equity capital markets. As some global investors are shying away from China, we are seeing more inefficiency in the Chinese onshore equity market.

What are the greatest challenges you face and why?

The pandemic has changed people’s perception of the physical work environment. While remote working makes sense for some positions, it is particularly challenging for an apprentice model. We are a firm believer in training through a wide range of hands-on experiences. A lot of those experiences require physical proximity to a senior member of the team. We have had to pass on a few talented candidates simply because they prefer to work remotely for positions that we believe don’t lend themselves to such an arrangement. Call me old-school, but I think it is a shame that there is an abundance of young, talented individuals who are undermining their potential and leaving growth opportunities on the table simply by desiring to work from home. 

What keeps you up at night?

The world is going through a phase of deglobalization. Inflation is widening the already vast wealth gap. Historically, this has led to conflicts and wars. While we don’t think we will be particularly affected as a market neutral fund, extreme geopolitical conflict is a tail event no one wishes to bear witness to. The tension seems only to worsen as ideologies between countries shift further apart. I am extremely worried that this polarization, coupled with the worsening economic conditions, could lead to disastrous consequences.

The views and opinions expressed above are of the interviewee only, and do not/are not intended to reflect the views of EisnerAmper.