Data wins out over emotion when investors use quantitative analysis strategies, according to Linda Gibson, CEO of PGIM Quantitative Solutions.

The use of facts rather than behavioral biases when selecting where to invest can reduce risk and increase returns, Gibson said in an interview.

Quantitative analysis of investment options is a technique that uses mathematical and statistical research and modeling to select the direction of investing on all levels, from asset classes to geographic areas to individual investments, according to Investopedia. The data-based strategy can be used to help advisors and investors decide when to purchase or sell securities, when to leave or enter a geographic area, or when to overweight or underweight a channel such as small caps. The technique compares such things as price-to-earnings ratios or earnings per share, as well as external factors.

“With so much data available, it creates a lot of research for the advisor or investor to look at,” Gibson said. “At PGIM Quantitative Solutions, we are much more capable of analyzing that data. ... For instance, quantitative analysis can assess whether value or growth investments will provide better returns. It removes the emotion from investing and allows the investor to fuse academic research with analytical techniques.”

PGIM is the asset management arm of Newark, N.J.,-based life insurance company Prudential Financial, which has $1.5 trillion in assets under management. The firm offers funds, including ETFs, based on quantitative analysis.

The quantitative analysis strategy helps advisors adjust portfolios for an individual’s risk tolerance and for his or her particular goals, she said. In addition, the geopolitical unrest that is roiling many areas of the world make investing especially risky, but analyzing an area using hard data can help an advisor customize a portfolio. For instance, PGIM Quantitative Solutions offers a capital-protection ETF that shields against sharp market downturns by limiting some gains on the upside.

As many consultants have come to realize, the traditional 60-40 portfolios no longer perform well, she said. Instead, diversification across asset classes is required and quantitative analysis can provide the basis for deciding what channels are strong, she said.

“Quants turbo charge investments by using efficient analysis and taking the insights provided by the research to apply to long-term investing,” Gibson said.

For instance, on the most basic level, fundamental-only managers would tell an investor not to invest in regional banks or Russia right now, but quantitative analysis can go far beyond those types of basics. It also provides guardrails so the investor does not go too far off what looks to be a positive path.

Quants do very well when there is a market drop, because the technique provides the factual base that enables the investor to prevent panic and focus on the long term, she said.

Using quantitative analysis can help advisors manage risk by including emerging market and micro-cap investments as a fact-based way to counter investors’ risk aversions, she said. It also enables advisors to develop portfolios using a combination of commodities with other investments, she said.

“We are looking at more areas of potential investment than a client can consider, which enables us to find sources of alpha. For instance, we can analyze micro-caps, where there is a limited amount of data, and compile useful guidance,” Gibson said.