Upon reaching this milestone, the platform has increasingly been using artificial intelligence and natural language processing for faster insights, deeper analysis and structured decision making – all while integrating environmental, social and governance (ESG) criteria.
Speaking to InvestorDaily, Ramkumar Rasaratnam, chief investment officer Equity QI at AXA Investment Managers (AXA IM), said the firm’s path to quant investing began with founder Barr Rosenberg, who is widely considered a pioneer of the strategy.
As Rasaratnam explained, Rosenberg’s computer-based approach essentially mirrored that of a fundamental manager, using income statements, balance sheets and other financial data to construct models of a company’s fundamentals and predict future earnings growth and profit margins.
Rasaratnam noted that while the core philosophy of their current strategy remains, the underlying technology has advanced significantly – with computing power now enabling investors to analyse vast datasets at an unprecedented speed and scale.
With the first neural network model launched by the firm eight years ago, he explained that the firm’s investment in AI has been a “long journey”.
In particular, he highlighted onboarding patent data as a key area, pointing to the firm’s recent use of AI to analyse about five terabytes of global patent data from the last 25 years in just one week.
“A year ago, it would have taken a month, a year before that, I don’t think we would have attempted it,” Rasaratnam told InvestorDaily.
He added that this dataset provides the firm with insight into a company’s research and development pipeline, allowing for peer comparison over time.
Through this research, Rasaratnam said the firm has discovered that companies with more unique patent filings tend to exhibit stronger fundamentals. This has enabled AXA IM to build conviction around stock picks and gain clearer insights into future earnings growth for individual companies.
In regard to the quant method’s role in sustainable investing, Rasaratnam emphasised that all of the firm’s portfolios have ESG integration, offering clients a “double bottom line” without compromising performance.
He explained that a systematic quant process allows for the creation of stock selection signals within an index. In turn, this results in a smooth replacement of stocks with high carbon footprints or low ESG scores with other investment opportunities that perform equally well while possessing superior ESG credentials.
Renewed popularity
Rasaratnam said that while quant strategies have fluctuated in popularity over time, their current resurgence is due, in part, to the highly concentrated market, with “Magnificent Seven” type entities dominating a very large portion.
“One of the advantages of a systematic, transparent approach like ours is that we can really separate some of that decision making around investing in these really big names,” he said.
Unlike fundamental managers, who must decide whether to be overweight or zero on major players like Nvidia based on their preferences, Rasaratnam argued that quant investors have an advantage in such periods since they can more objectively determine optimal position sizes and maintain risk control.
“We’ve been able to navigate these concentrated markets by having a very clear, transparent way of articulating that in this investment process, and articulating the performance we deliver through that,” he told InvestorDaily.
The rising popularity of quant funds was also a topic of discussion during a recent webinar, when Martin Conlon, head of Australian equities at Schroders, said that August’s huge valuation swings were a sign of broader market shifts.
According to Conlon, fundamental investors are no longer dictating prices, with a substantial amount of capital now flowing into quantitative and momentum-based strategies.
“These large moves are really just a response to the computer setting the prices and then fundamental investors chasing them,” he said.
However, while Rasaratnam similarly observed that some fundamental investors have adopted behaviours seen in quant funds over his 25 years in the industry, he said the consistent focus for AXA IM remains translating these broader concepts into long-term gains.
With AI tech making leaps and bounds in progress, Rasaratnam affirmed that human oversight remains crucial within the quant investing space. He said this is particularly true as the integration of data science, machine learning and AI is demanding increasingly specialised skill sets – an area in which AXA IM is actively investing in by upskilling its team.
“I think the only time I can see in my mind that humans won’t be there is when it’s not humans driving prices … but I can’t see a time when humans decide that they don’t want to pick their own stocks,” he added.
