Quant funds in trouble this time. Any insights into what went wrong?

Discussion in 'Professional Trading' started by helpme_please, May 4, 2019.

  1. First, we hear about trend-followers doing badly. Then, value investors. Now, the nerdy quants. All these happening in one of the longest bull markets in U.S history. As a retail investor, I look up to these hedge fund managers and like to read books and watch videos about them. I sincerely think they are smarter than me, hence I actively hear them out when they give interviews.

    AQR is known to be one of the top quant funds. The Equity Market Neutral fund is down 6.9% year to date 2019. Did I read wrongly? I thought the U.S equity market just had one of the strongest quarter in history. Cliff Asness is one of the quant managers that I like to listen.

    Can the elitetraders here share their insights what has gone wrong when even highly intelligent, passionate people are doing badly in a BULL market?!


    BlueMountain Capital Management is liquidating its $1 billion computer-driven portfolio, as it shifts back to focus on its roots: human-run fixed income and credit.

    The systematic portfolio gained 4.4 percent last year, Vogel said. It fell about 1 percent in 2017, according to one of the people.

    Quant hedge funds have struggled from lackluster performance, investor withdrawals and rising costs. Systematic trading funds lost 3.6 percent in April, Goldman Sachs Group Inc. said in an April 26 note. That’s the worst month since January 2015 when the bank started tracking the data. The losses were spurred by funds crowding into wagers against stocks and momentum trades or betting on short-term market trends.

    Among quant fund losers last month was AQR Capital Management’s Equity Market Neutral Fund, which slumped 4.8 percent in April and 6.9 percent this year, according to its website.
  2. themickey


    It may be that they are becoming part of group think.
    Maybe there is too much conservative thinking in their ranks, too much fear of being an outsider so they are falling into the trap of institutional conformity, internally and externally.
    Also maybe they are hedging too much which is driving up costs.
    An alone trader has the advantage they are answerable to no-one which allows for more flexability and lack of fear from peers. That becomes one less stress pressure point.
  3. many strategies are premised on "average" market environment and some factors dont work during market dislocations. The sharp melt-down and rapid melt-up don't fare well for traditional factors.
    nooby_mcnoob likes this.
  4. dozu888


    Hedge funds is a zero sum industry. They are supposed to underperform! Warren already won a million dollar bet on it. Nothing surprising here.
    VPhantom and jys78 like this.
  5. Hedge funds under-performing is only a recent phenomenon. Hedge funds out-performed during the bear market from 2000-2002. They under-performed in the bull market that started in 2009. Furthermore, since hedge fund managers are paid so well, they should out-perform. Otherwise, it will seem like free market forces do not work on money managers.
    murray t turtle likes this.
  6. Handle123


    I believe many quants do not have couple decades trading the markets, therefore they not seen it all, most only know bull market, and as in any bull, uptrends are herky jerky moves. Swings go from low slope and standard ranges, then all of a sudden it is "profit taking", raping retail should be used instead. Not only do they take profits, they sell sell sell. Now this works till the narrowing of volatility and then they are lost again, this is what I believe happens. Not enough experience and not enough rules within automation, too engrossed into making major profits and where they leave door wide open for major losing.

    I doubt most understand signals for bull markets are different for retracements.

    As with rotation of methods, dropping/adding of symbols, I think so will HFTs.
  7. This is a variation of the standard news story:

    "Strategy designed to be uncorrelated with market does badly when market does well"

    Brookwood, bln, nooby_mcnoob and 3 others like this.
  8. It is inexplicable. Can't think of a good reason why this is happening despite the amount of brains and resources thrown into this problem.
  9. dozu888


    you are partially making stuff up or have been brained washed by them hedge guys lol. of course anything market neutral will outperform when the index dives.... but Warren won that 10year bet in a period starting from 2007, that's a fair bet with 1 major bear in there.

    this thing called 'survivorship bias' is quite a bitch... if you start with 1028 monkeys throwing random darts, you will get 1 monkey who outperforms the index 10 years in a row.. 2 will 9 years in a row, 4 will 8... and so on... bigger number if you do 9 out of 10 or 8 out of 10.... all are impressive results to print in the prospectus and lure in investors.... then of course once you put in that $100k these guys just market perform and suck that 2% out of you every year.... and you wonder where all that brilliancy has gone lol... and there is no law that says they have to quit... once a fund blows up they just start over... do this a couple of times you are set for life... quite a scam.

    are there real talent out there, who can TRUEly outperform? of course, and those managers do deserve the high pay.... but this survivorship bias throws so many pretenders in the pool it's very difficult for investors to find the real deal.... perhaps the only guys worth looking at are the HFT guys with a track record as those are difficult to do with pure luck.... but then the initial investment will be like $50m or something lol... anything low frequency, like selling options once a month etc etc... too many random monkeys doing that stuff in there.
  10. If we view solely hedge funds as the system under consideration, then not really: there are some market inefficiencies caused by other participants (the environment) that is a net flow into the system. The problem is, the external environment in this case does not enjoy losing money and is gradually becoming more efficient. In the long run, there is no point to hedge funds or trading, but we're not at a perfectly efficient market quite yet.

    Above semantics aside, I agree with you. Finding anything that does better than random/index in a non-stationary environment is just bloody hard and there's no guarantee that someone who is competent right now will be so next year. Pitching shit products (funds) is a salesman's job however and more people can manage to do that.

    On a side note, most algos (like common factor algorithms) are based on the assumption that the environment is stationary. This is why they eventually fail. lulz
    #10     May 5, 2019
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