The human brain is prone to cognitive biases caused by – among other factors – limited information processing capability, heuristics and emotional influences. Systematic investing seeks to overcome humans' innate discretionary and behavioural biases by implementing robust rules-based investment decisions – coded into algorithms – to drive considered, repeatable investment decisions across asset classes globally. These rules-based investment algorithms can assess huge amounts of data in real time, do not rely on 'gut instinct', are not influenced by fatigue or emotions and can ensure consistency of thought and rigour of risk management.
Systematic investing, when implemented in a robust environment, can be a source of diversification across asset classes and investment styles. Systematic investing offers investment style diversification away from fundamentals-focused discretionary approaches as well as passive approaches. Systematic approaches typically do not rely solely on fundamental (e.g. growth-focused) data but also consider technical price data and newer alternative data sets such as news, weather and shipping information. This diversification of input data can help systematic approaches deliver performance even when fundamentals (e.g. economic growth rates) are challenged or are not driving asset prices. Risk management in systematic funds is not left to the discretion of the trader or analyst, but rather is coded as unwavering exposure management rules. This helps systematic investing have a well-defined and contained risk profile.