Invest
The age of the centaur investor
Growing up, I loved watching The Six Million Dollar Man – Steve Austin’s human judgment combined with machine enhancements made him invincible.
The age of the centaur investor
Growing up, I loved watching The Six Million Dollar Man – Steve Austin’s human judgment combined with machine enhancements made him invincible.

The idea of seamlessly integrating the best of human and machine has always captured the imagination – if you can take the best of each, who can beat that? As a real life example, chess champion Garry Kasparov invented Freestyle Chess after being defeated by the Deep Blue computer in 1997. He referred to the players as centaurs; humans using inputs from computer programs to select the optimal move. Twenty years on, this combination still beats humans and computers individually. Interestingly, it isn’t always the best chess players that win at freestyle chess, but rather those who have the best process to combine them. There are some striking similarities when applied to the infinitely more complex task of investing.
Quantitative investing has changed the investment landscape and raised the investment bar for fundamental stock pickers. Quant-based investing exploits the limitations and biases of traditional investing, bringing an objective, repeatable and unemotional approach not easily replicated by humans. It works well in steady trending markets, but struggles in volatile periods like the GFC when the rules change. It is in these market ‘regime changes’ where a lot of money can be made or lost.
Humans have abilities that machines are not close to achieving. There is an ‘art’ to investing that cannot be programmed. Fundamental-based funds focus on individual company financials as well as external industry and economic factors. They can anticipate change, uncover unprecedented outcomes and retain the ability to react more flexibly to market changes.
A pure fundamental approach and a pure quantitative approach can still work well independently at specific times. However, correctly combining the upside of humans and computers, while controlling the limitations, can do even better over time, with materially lower volatility.

At their core, fundamental and quant are at opposite ends of the investment spectrum and historically existed almost in opposition to each other. It is rare for a fundamental manager to concede that their well-researched view could be wrong based purely on quant data. Many fundamental funds claim to include some quant in their process, but often this is more stock screening than helping pick stocks. Conversely, post-GFC, many quant funds coined the term ‘quantamental’ where they added some human oversight to their quant output. However, there is not much evidence that slightly blurring either end of the spectrum adds significant value. It is very difficult to take one type of culture and turn it into something else.
You therefore need to have a process that trusts and understands both sides equally, that is focused on performance regardless of source, that knows its benefits and limitations and has the skillset to work in both worlds. It must be in the DNA of the fund from the start. Full integration and trust are critical to get a true partnership between detailed, analyst-driven fundamental research and quantitative research inputs targeted to a specific outcome. Quant needs to be produced in an understandable and pragmatic way with clear implications for fundamental research. Much as ‘style neutral’ managers don’t think of themselves as ‘value’ or ‘growth’, a true ‘centaur’ investor must think of themselves as ‘research neutral’.
Due to cultural and skill challenges, few are doing this well, and indeed many not at all. However, the upside from getting it right is material and likely to produce much more consistent returns over time. As machine learning, AI, and data-science gain in power, the opportunity for the true ‘centaur’ investor is vast.
Andrew Martin is portfolio manager and principal at Alphinity Investment Management.

Investment insights
Global investment giant tips market resilience and rate cuts to continue in 2025
State Street Global Advisors has predicted ongoing interest rate cuts and economic resilience for 2025, with its forecast of a US soft landing expected to materialise. Read more

Investment insights
UK pension funds and insurers plan significant investments in renewable energy
A new survey by AlphaReal reveals that UK pension funds and insurers are looking to increase their investments across a range of renewable energy technologies over the next five years. Read more

Investment insights
Morgan Stanley executive touts benefits of long-term equity investing
Investing in high-quality companies with sustainable returns can lead to strong long-term performance, according to a senior Morgan Stanley executive. Read more

Investment insights
Diversification key to managing political risks in global markets, says deVere CEO
Political uncertainties in Europe, the UK, and the US are driving market dynamics, making diversification crucial for investors, according to Nigel Green, CEO of deVere Group. Read more

Investment insights
Diversify AI investments beyond Nvidia for long-term wealth, says deVere Group CEO
Investors should look beyond AI giants like Nvidia and diversify their investments across the wider AI ecosystem to build long-term wealth, according to Nigel Green, CEO of financial advisory and ...Read more

Investment insights
Disappointment over Apple's AI plans and political uncertainty in France weigh on markets
Investors were left unimpressed by Apple's revelations about its artificial intelligence (AI) plans at the company's Worldwide Developer Conference yesterday. Despite details about a partnership with ...Read more

Investment insights
The future of investment: Trends shaping Australia in 2024
As we look towards 2024, the Australian investment landscape is poised to undergo significant transformations driven by technological advancements, economic shifts, and evolving consumer behaviorsRead more

Investment insights
Market rally faces next test as Nvidia earnings loom amid inflation debate
Equity markets around the world celebrated last week after softer-than-expected US inflation data fueled hopes of interest rate cuts, but questions remain over whether the rally can be sustained as ...Read more

Investment insights
Global investment giant tips market resilience and rate cuts to continue in 2025
State Street Global Advisors has predicted ongoing interest rate cuts and economic resilience for 2025, with its forecast of a US soft landing expected to materialise. Read more

Investment insights
UK pension funds and insurers plan significant investments in renewable energy
A new survey by AlphaReal reveals that UK pension funds and insurers are looking to increase their investments across a range of renewable energy technologies over the next five years. Read more

Investment insights
Morgan Stanley executive touts benefits of long-term equity investing
Investing in high-quality companies with sustainable returns can lead to strong long-term performance, according to a senior Morgan Stanley executive. Read more

Investment insights
Diversification key to managing political risks in global markets, says deVere CEO
Political uncertainties in Europe, the UK, and the US are driving market dynamics, making diversification crucial for investors, according to Nigel Green, CEO of deVere Group. Read more

Investment insights
Diversify AI investments beyond Nvidia for long-term wealth, says deVere Group CEO
Investors should look beyond AI giants like Nvidia and diversify their investments across the wider AI ecosystem to build long-term wealth, according to Nigel Green, CEO of financial advisory and ...Read more

Investment insights
Disappointment over Apple's AI plans and political uncertainty in France weigh on markets
Investors were left unimpressed by Apple's revelations about its artificial intelligence (AI) plans at the company's Worldwide Developer Conference yesterday. Despite details about a partnership with ...Read more

Investment insights
The future of investment: Trends shaping Australia in 2024
As we look towards 2024, the Australian investment landscape is poised to undergo significant transformations driven by technological advancements, economic shifts, and evolving consumer behaviorsRead more

Investment insights
Market rally faces next test as Nvidia earnings loom amid inflation debate
Equity markets around the world celebrated last week after softer-than-expected US inflation data fueled hopes of interest rate cuts, but questions remain over whether the rally can be sustained as ...Read more