Mutual Fund Analysis: Quantitative & Qualitative Approaches

Quantitative versus qualitative analysis of mutual funds is when you try to make mathematical and statistical conclusions about a given mutual fund, rather than making judgments about the overall quality. Quantitative analysis involves considering such factors as the correlation between a given fund and the broad market, the standard deviation of returns, or the moving average of any divergence that exists between a given fund and the benchmark it claims to track. Qualitative analysis considers more subjective factors like the skills of the manager, the relative position of the fund to your long-term view of where the market is going, and the ability of the fund to capture compelling investment themes.

You can use both methods of analysis to make investment decisions about mutual funds, and different individuals have varying opinions as to which method is superior. Quantitative analysis, which is commonly used in the analysis of individual stocks, is often difficult to apply to mutual funds. Because funds trade only once per day, you have fewer data points to work with and less detail for each fund. Furthermore, the internal forces that affect mutual funds are different. Ultimately, a blend of both quantitative and qualitative analysis will give you the most informed position.