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Hedge Fund Battle: Discretionary vs Systematic Investing

Man versus machine

Karl Rogers & Nicolas Rabener
10 min read
23 Nov 2020

SUMMARY

  • Given alternative data, machine learning, and AI advances, systematic should beat discretionary investing
  • However, the performance of systematic and discretionary equity market neutral hedge funds has largely been the same since 2009
  • Both were also correlated to the stock market, offered low returns, and featured no performance consistency

INTRODUCTION

Anyone who has watched the hit TV show ‘Billions’ will have noticed that the hedge fund billionaire Bobby Axelrod and his former lieutenant, and occasional nemesis, Taylor Mason have totally different trading styles. Bobby, although mathematically gifted, is a discretionary trader that makes investment decisions on the fly based on receiving new information on stocks from his analysts and network of colorful relationships. In contrast, Taylor is a traditional quant who believes in systematic trading.

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