The evolution of quant and why it matters

This article was produced in partnership with Federated Hermes MDT Advisers

Since the 2008 Global Financial Crisis, quantitative investing has undergone a quiet revolution. Once viewed with skepticism due to high-profile failures, today’s quant strategies are powered by exponential advances in computing, data and Machine learning. These innovations have transformed quant from a niche approach into a for investors seeking portfolio diversification and alpha generation.

Machine learning have advanced investment management capabilities

Quantitative investing began over a century ago with academic theories like Louis Bachelier’s Theory of Speculation (1900) and evolved through milestones like Harry Markowitz’s portfolio optimization and Eugene Fama and Kenneth French’s factor models. But exponential transformation began in the 2010s with the rise of machine learning (ML) and big data.

Why does this matter to your client portfolios?

Advanced quantitative capabilities allow quant strategies to uncover opportunities that traditional managers may miss. Including both traditional and quantitative managers in an active equity allocation may enhance portfolio diversification and lower overall risk potential.

Adding a quant equity approach may enhance risk-adjusted return

Our research has shown that Federated Hermes MDT Advisers’ quantitative approach may offer a compelling complement to traditional active equity strategies by providing excess return diversification — even within the same style box¹.

MDT’s quantitative equity portfolios have generally delivered excess returns with low correlation to those of fundamental managers.

That can mean:

• Improved risk-adjusted return potential
• Reduced portfolio concentration risk
• Exposure to alternative sources of alpha

We believe this is because MDT makes decisions differently than traditional bottom-up managers. For example, MDT uses decision tree algorithms that avoid factor bias and seek diverse alpha sources, while traditional managers may lean towards certain factors or styles.

Can your traditional manager do this? 

5 things that differentiate quant from traditional managers 

1. Detect sentiment, tones and keyword patterns across thousands of corporate documents and calls

• Natural Language Processing of earnings calls and SEC filings can help identify management confidence, risk disclosures or shifts in strategy

2. Instantly assess company data from multiple sources within tailored risk constraints to produce return forecasts

• Quants can use decision tree algorithms to evaluate every stock individually, asking different questions for each one, tailoring insights to thousands of companies at once

3 Analyze thousands of companies simultaneously each day

• Quants can process massive datasets in real time. A human manager simply can’t keep up with that volume or speed

4. Spot hidden patterns in market behavior

• Quants can detect subtle, nonlinear relationships between hundreds of investment factors—patterns that can be too complex or counterintuitive for humans to recognize without bias

5. Adapt quickly to new information

• Traditional managers often need more time to adjust their strategies and may struggle with emotional or cognitive biases

For more insights, access the full length “A history of quant” paper here.

Click here to discover how MDT combines human insight with data-driven discipline to help bring clarity, consistency, and scale to stock selection.

Reach out to a Federated Hermes relationship consultant to assess MDT’s diversification capabilities with your current manager lineup by calling 1-888-400-7838.

^{1 As of 6/30/25. Sources: Morningstar, Inc. Federated Hermes, Inc. Past performance is no guarantee of future results. Based on the 10-year performance for the IS Shares of the six Federated Hermes MDT long equity mutual funds.} 

^Disclaimers:  

^{Investors should carefully consider the fund’s investment objectives, risks, charges, and expenses before investing. To obtain a summary prospectus or prospectus containing this and other information, contact Federated Hermes or view the prospectus provided on FederatedHermes.com/us. Please carefully read the summary prospectus or prospects before investing.} 

^Definitions  

^{Alpha is a measure of risk-adjusted returns. A portfolio with an alpha greater than 0 has earned more than expected given its beta (a measure of risk) — meaning the portfolio has generated excess return without increasing risk. A portfolio with a negative alpha is producing a lower return than would be expected given its risk level.}  

^{Correlation measures the similarity between two return series on a scale of -1.0 to +1.0. Assets with a correlation of 1.0 are perfectly correlated, -1.0 demonstrates perfect negative correlation and 0.0 indicates the absence of correlation.}  

^{Correlation of excess returns measures how closely the excess returns (versus a common benchmark) of two strategies move together. A low metric suggests that the products perform differently in various environments, increasing the chance of producing alpha in a different way, which can help diversify this asset class exposure.} 

^{Excess returns are calculated by subtracting a portfolio’s performance from its benchmark’s performance. This return comparisons may be either positive or negative. A positive excess return shows that an investment outperformed its benchmark, while a negative difference shows that the investment underperformed.}  

^{Decision (or regression) trees are a series of yes/no questions based on explanatory (independent) variables that lead to a prediction.}  

^{A word about risk}  

^{The quantitative models and analysis used by MDT may perform differently than expected and negatively affect performance.}  

^{Investing in equities is speculative and involves substantial risks. The value of equity securities will rise and fall. These fluctuations could be a sustained trend or a drastic movement.}  

^{Diversification does not assure a profit nor protect against loss.}  

^{Stocks are subject to risks and fluctuate in value.}

^{Factors, as described in this paper, are isolated elements believed to affect stock prices. Examples of factors include price-to-earnings and price-to-book ratios (value), earnings-per- share growth (growth), company size/market capitalization, or momentum (price movement).} 

^{Federated Securities Corp. is the distributor of Federated Hermes funds.} 

^{Not FDIC Insured • May Lose Value • No Bank Guarantee}  

^{MDT Advisers, a Federated Advisory Company} 

^{25-20267 (12/25)}