Active Equity Investing: Strategies

Approaches

Active strategies can be categorized as fundamental (discretionary) and quantitative (systematic).

Fundamental portfolios are usually more concentrated over a smaller number of investments than quantitative portfolios.

Bottom-Up Strategies

Start the asset selection process from individual company data.

Top-Down Strategies

Start from the macro level. Often use ETFs, derivatives, and baskets rather than individual picks.

Factor-Based Strategies

Factor portfolios can be created by going long the top decile of the factor and short the bottom decile of the factor. Won’t perfectly replicate factor performance.

Pearson Information Coefficient is vulnerable to outliers, Spearman rank IC is often preferred.