Quantitative fund
   HOME

TheInfoList



OR:

A quantitative fund is an
investment fund An investment fund is a way of investing money alongside other investors in order to benefit from the inherent advantages of working as part of a group such as reducing the risks of the investment by a significant percentage. These advantages inc ...
that uses quantitative investment management instead of fundamental human analysis.


Investment process

:''See for a listing of relevant articles.'' An investment process is classified as
quantitative Quantitative may refer to: * Quantitative research, scientific investigation of quantitative properties * Quantitative analysis (disambiguation) * Quantitative verse, a metrical system in poetry * Statistics, also known as quantitative analysis ...
when
investment management Investment management is the professional asset management of various securities, including shareholdings, bonds, and other assets, such as real estate, to meet specified investment goals for the benefit of investors. Investors may be institut ...
is fully based on the use of mathematical and statistical methods to make investment decisions. If investment decisions are based on fundamental analysis and human judgement, the process is classified as fundamental. The quantitative investment process, essentially, breaks down into three key components: *Input system: Providing all necessary inputs such as market data and rules (see financial data vendor); *Forecasting engine: Generating estimations for prices and returns and also, risk parameters; *Portfolio construction engine: portfolio composition using optimizers or a heuristics-based system (see
Portfolio optimization Portfolio optimization is the process of selecting the best portfolio (asset distribution), out of the set of all portfolios being considered, according to some objective. The objective typically maximizes factors such as expected return, and minimi ...
and Mathematical tools). Quantitative
portfolio managers A portfolio manager (PM) is a professional responsible for making investment decisions and carrying out investment activities on behalf of vested individuals or institutions. Clients invest their money into the PM's investment policy for future grow ...
and quantitative analysts usually require a strong background in mathematics and computer science, besides knowledge of the academic financial literature. Many quantitative specialists have a
PhD PHD or PhD may refer to: * Doctor of Philosophy (PhD), an academic qualification Entertainment * '' PhD: Phantasy Degree'', a Korean comic series * ''Piled Higher and Deeper'', a web comic * Ph.D. (band), a 1980s British group ** Ph.D. (Ph.D. albu ...
in
Financial Economics Financial economics, also known as finance, is the branch of economics characterized by a "concentration on monetary activities", in which "money of one type or another is likely to appear on ''both sides'' of a trade".William F. Sharpe"Financial ...
,
Engineering Engineering is the use of scientific method, scientific principles to design and build machines, structures, and other items, including bridges, tunnels, roads, vehicles, and buildings. The discipline of engineering encompasses a broad rang ...
or
Mathematics Mathematics is an area of knowledge that includes the topics of numbers, formulas and related structures, shapes and the spaces in which they are contained, and quantities and their changes. These topics are represented in modern mathematics ...
. In depth knowledge is needed to as the investment algorithms employ advanced optimization methods using the latest academic insights. Statistical models are used to explore profits that may be made out of systematic market abnormalities which can be very fast such and requires
high-frequency trading High-frequency trading (HFT) is a type of algorithmic financial trading characterized by high speeds, high turnover rates, and high order-to-trade ratios that leverages high-frequency financial data and electronic trading tools. While there is no ...
, but can also be slower requiring less turnover when the alpha is based on
factor investing Factor investing is an investment approach that involves targeting quantifiable firm characteristics or “factors” that can explain differences in stock returns. Security characteristics that may be included in a factor-based approach include si ...
.


History and performance

Hedge funds have been driving the growth of quantitative funds over the past decades. A good description of the history of hedge funds can be found in the book " More Money than God". Several of these early funds were quantitatively managed. Over the past two decades quantitatively managed funds have become popular as an increasing number of asset managers adopted quantitative investing and launched a wide range mutual funds as well as
exchange traded funds An exchange-traded fund (ETF) is a type of investment fund and exchange-traded product, i.e. they are traded on stock exchanges. ETFs are similar in many ways to mutual funds, except that ETFs are bought and sold from other owners throughout the d ...
. Most quantitative funds are equity funds, besides fixed income quantitative funds which have become more popular in the past years. After the sub-prime mortgage market turbulence, which cast long shadows over many parts of the financial industry, the total mutual fund asset that employ quantitative model is estimated to be over US$400 billion at the end of June 2016. As of 2019 the figure was to surpass the $1tn management mark in 2018.
Quantitative investing Quantitative analysis is the use of mathematical and statistical methods in finance and investment management. Those working in the field are quantitative analysts (quants). Quants tend to specialize in specific areas which may include derivative s ...
accounts for 16 percent of actively managed assets in the U.S. in 2006, up from 13 percent in 2003, according to Vanguard. Many quantitative funds were able to deliver high long-term risk-adjusted returns profiting from the positive exposure of factors such as value, momentum, low-volatility and quality. This positive performance gave rise to the further growth of quantitative funds. Performance of several well-known quant factors was weak in the period 2018-2020, a period also referred to as the 'quant winter'.


Fund structures

Quantitative strategies are offered in different type of fund structures: *
Hedge fund A hedge fund is a pooled investment fund that trades in relatively liquid assets and is able to make extensive use of more complex trading, portfolio-construction, and risk management techniques in an attempt to improve performance, such as sho ...
. The first quantitative funds were offered as hedge funds and not available to a broad public. The goal of those funds is to earn an absolute return with little constraints and freedom to apply leverage, shorting and derivatives. *
Mutual fund A mutual fund is a professionally managed investment fund that pools money from many investors to purchase securities. The term is typically used in the United States, Canada, and India, while similar structures across the globe include the SICAV i ...
. With the increasing popularity of quant investing, quant strategies were also wrapped into mutual funds. Quant mutual funds aim to deliver
alpha Alpha (uppercase , lowercase ; grc, ἄλφα, ''álpha'', or ell, άλφα, álfa) is the first letter of the Greek alphabet. In the system of Greek numerals, it has a value of one. Alpha is derived from the Phoenician letter aleph , whic ...
on top of a benchmark usually a
stock market index In finance, a stock index, or stock market index, is an index that measures a stock market, or a subset of the stock market, that helps investors compare current stock price levels with past prices to calculate market performance. Two of the ...
. *
Exchange traded fund An exchange-traded fund (ETF) is a type of investment fund and exchange-traded product, i.e. they are traded on stock exchanges. ETFs are similar in many ways to mutual funds, except that ETFs are bought and sold from other owners throughout the ...
(ETF). After hedge funds and mutual funds, quant strategies were also wrapped into exchange traded funds usually tracking a rules-based factor-based index. These strategies are also referred to as ' smart-beta' strategies. Hedge funds have most investment freedom and can employ varieties of strategies such as
market neutral An investment strategy or portfolio is considered market-neutral if it seeks to avoid some form of market risk entirely, typically by hedging. To evaluate market-neutrality requires specifying the risk to avoid. For example, convertible arbitrage a ...
,
statistical arbitrage In finance, statistical arbitrage (often abbreviated as ''Stat Arb'' or ''StatArb'') is a class of short-term financial trading strategies that employ mean reversion models involving broadly diversified portfolios of securities (hundreds to thousan ...
, or
high-frequency trading High-frequency trading (HFT) is a type of algorithmic financial trading characterized by high speeds, high turnover rates, and high order-to-trade ratios that leverages high-frequency financial data and electronic trading tools. While there is no ...
strategies to enhance the return of one's portfolio, whereas ETFs are most constrained.


List of notable quantitative funds

The following firms are known for their quantitative funds. *
Acadian Asset Management Acadian Asset Management (Acadian) is an American investment management firm headquartered in Boston with additional offices in London, Singapore and Sydney. The firm is noted for its usage of Quantitative analysis and strategies when making in ...
* AlphaSimplex Group *
AQR Capital AQR Capital Management (Applied Quantitative Research) is a global investment management firm based in Greenwich, Connecticut, United States. The firm, which was founded in 1998 by Cliff Asness, David Kabiller, John Liew, and Robert Krail, offe ...
* Bridgewater Associates * Capula Investment Management * Citadel LLC * D. E. Shaw & Co. *
Man Group Man Group plc is an active investment management business listed on the London Stock Exchange. It provides a range of funds across liquid and private markets for institutional and private investors globally and is the world's largest publicly tr ...
* Millennium Management, LLC * PanAgora Asset Management * Point72 Asset Management *
Renaissance Technologies Renaissance Technologies LLC, also known as RenTech or RenTec, is an American hedge fund based in East Setauket, New York, on Long Island, which specializes in systematic trading using quantitative models derived from mathematical and statisti ...
*
Quantedge Quantedge Capital is an alternative investment asset manager based in Singapore and New York City. It manages over US$3 billion under its flagship Quantedge Global Fund primarily on behalf of high-net-worth individuals, family offices and instit ...
*
Two Sigma Two Sigma Investments is a New York City-based hedge fund that uses a variety of technological methods, including artificial intelligence, machine learning, and distributed computing, for its trading strategies. The firm is run by John Overdec ...
* Winton Group *
WorldQuant WorldQuant, LLC is an international hedge fund and quantitative investment management firm headquartered in Old Greenwich, Connecticut. Founded in 2007, the firm is currently managing approximately $9 billion in assets under management for Mi ...
The largest asset managers such as 'big three' BlackRock,
State Street State Street may refer to: Streets and locations *State Street (Chicago), Illinois * State Street (Portland, Maine) *State Street (Boston), Massachusetts *State Street (Ann Arbor), Michigan * State Street (Albany), New York *State Street (Manhatta ...
, and
Vanguard The vanguard (also called the advance guard) is the leading part of an advancing military formation. It has a number of functions, including seeking out the enemy and securing ground in advance of the main force. History The vanguard derives fr ...
also offer quantitative funds to investors.


See also

* Value investing * Momentum investing *
Low-volatility investing Low-volatility investing is an investment style that buys stocks or securities with low volatility and avoids those with high volatility. This investment style exploits the low-volatility anomaly. According to financial theory risk and return should ...
*
Factor investing Factor investing is an investment approach that involves targeting quantifiable firm characteristics or “factors” that can explain differences in stock returns. Security characteristics that may be included in a factor-based approach include si ...
*
Growth investing Growth investing is a style of investment strategy focused on capital appreciation. Those who follow this style, known as ''growth investors'', invest in companies that exhibit signs of above-average growth, even if the share price appears expens ...


References

{{reflist Investment management Algorithmic trading