Intro

Why do active managers that employ a quantitative approach tend to hold more active positions in their portfolio than those that follow a fundamental approach?

Attempt $1/3$ for $10$ pts$.$

Part$1$

Because quantitative models are only weakly predictive of returns, so they need to spread their bets across many stocks.

Because they tend to follow broader benchmarks like the Russell $3000$ rather than the S&P $500.$

Because their objective is to reduce factor loadings to zero, which can only be done by very broad diversification.

Because the effect of diversification is lower due to the fact that stocks in a quantitative portfolio are more highly correlated.

Because they must maintain their tracking error close to zero to extract value from their quantitative signals.

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