Morningstar's John Rekenthaler covered the history of a rivalry between scientific investing and the art of portfolio management. The impetus for his column was an article by Morningstar's Sam Lee called "The Science of Investing," exploring the prevalence of more science-constructed stock-fund sales rather than funds relying on a PM.

Rekenthaler writes that academics have tried to "knock traditional managers off their perch" for a long time, and are now succeeding as what was once considered the talent of PMs is now thought to be measured by various factors such as value, size and liquidity.

Before the 1960s, basing investing simply on the bare numbers was considered irresponsible until the era of computers began and data became more important to making portfolio decisions, Rekenethaler writes. This kind of analysis moved into obscurity again and managers began a form of quantitative investment known as flipping stocks but when the tech bubble burst, those gains didn't last. Now index funds and funds that use factors have attracted a lot of assets, Rekenthaler writes.

He comes to the conclusion that academics are more likely to share information, which makes funds cheaper and generally benefits the retail investor. Though it is not the best of all words, Rekenthaler says, "It's the better of two possible investment worlds."

To read more, click here.  

Edited by: Casey Quinlan


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