Research-Thesis: A comparative performance analysis of quantitative and discretionary approaches in investment fund management.

Abstract

Computerised models have taken over a growing share of investment decisions. This master’s thesis asks whether the shift has paid off by comparing US-domiciled actively managed equity mutual funds from 2000 to 2024. The sample covers 3,028 funds, 222 quantitative (model-driven) and 2,806 discretionary (human-managed). Lipper's prospectus-based flag identifies the model-driven funds. A six-factor Fama–French–Carhart model measures performance, with factors matched to each fund's investment region. The first step produces a risk-adjusted return (alpha) for each fund. The second step compares those alphas between the two styles, controlling for size, age, fees, flows and region. Net monthly returns are almost identical at around 0.77% for both styles. The difference shows up in alpha. After controlling for size, age, fees, flows and investment region, quantitative funds earn on average 0.57 percentage points less net alpha per year than discretionary funds, and 0.69 points less gross of fees. Both gaps are significant at the 1% level. The result holds when the minimum return history is shortened to 24 months or extended to 60 and is the widest among the longest-lived funds. For an investor expecting a systematic fund to outperform, the data offers no support. Neither style earns high positive alpha on average. The key difference is that quantitative funds offer lower fees and more predictable outcomes, while discretionary funds carry more dispersion but also more outperformers and a higher average alpha, net and gross of fees. The two approaches appear complementary rather than rivals.