What I don't understand is when quants, particularly those in the equities space, say they perform well when markets are volatile. This statement applies more for day traders and market makers like Virtu. For stock strategies which hold for longer duration, I expect performance to be better when volatility is low. This is because equity bull markets are associated with lower volatility. https://www.institutionalinvestor.c...oblem-So-Why-Do-They-Also-Have-So-Many-Assets Over the last five years, the MSCI World index has generated 11.6 percent returns on an annualized basis. The equity quant index, in contrast, was up 0.88 percent annualized through November. “Quant strategies, which are designed to do better when markets are volatile, struggled when there was little vol between 2016 and 2019,” said Alitovski. “But they also were challenged in Q1 when vol was at unprecedented levels. Vol was too low for a number of years to eke out strong performance. But then it was too high for the models to cope.”
They are led by programers and people that think can make a dime in the market by programming an app to make money. An idiot tells a programmer how to write a program how to make money... the programmer walks away with a wage... the hft you made is just a shortcut, an halfassed way to make money. But they got the money so we gotta follow the rules of them and take money out of their pockects.
Did absolutely all of them underperformed, or, at the same time - few were killing it ? Probably, Pareto Law is strong among their niche too.
What you call hedge funds and quant funds are today by large majority long only funds. There are very few hedge funds that largely outperformed the market, among others, activist funds and uniquely structured funds or VC funds. The majority other funds are managed by the same lemmings as long only funds and it shows in the quarterly reports.
I been watching this trend following fund performance over the last 10 years, not for any reason, just he has the monthly performance data easily available on the internet. http://www.tacticalnet.com/TacticalInstitutionalFutures.php He seems to have done well last year, 50% return.
One reason is that quant strategies are replicated across the place. This leads to a rush for exits and entries at the same time which hurts performance
Cards on the table, I'm an ex quant fund manager and naturally biased. But this lazy reporting annoys me. First of all you have to keep careful when people, especially journalists, make sweeping statements. They've cherry picked the performance of one index in one sector of the market, and broadened it to mean 'all quant'. That's like looking at the FTSE UK retail sub-index and saying global equities have done badly over the last five years. Also outright performance isn't neccessarily what you want as any fund is designed to be held as part of a portfolio. 1% might be very poor, but if it was achieved with very low risk and zero Beta may still be attractive. It's also very easy to make comparisons on the back of a five year bull market in equities, even if it did have a slight hiccup in March. I'm also wary of talking heads like this guy (think he is the one quoted in the article) who has never actually worked in a quant fund or indeed in any kind of hedge fund. Met and worked with plenty of allocators and consultants like that back in the day. Many of them are nice people and some are friends, but they only need to know a tiny amount more than their clients, which means they normally know a tiny amount more than bugger all (and the ones who are friends admit it). They usually have to cover quite wide spectra of funds (only about half a dozen of the largest allocators have say a dedicated CTA analyst, and they are usually very junior graduates working in a large team), and without the right background they haven't got a chance of really understanding every single one even if they are very smart (and the truth is the ones who are smart enough usually go to work for funds where they can get paid for it). Having said all that I'd imagine the underperformance of the value factor was particularly problematic for equity market neutral funds. That looks like it's reversed in the last few months (so figures up to November don't really reflect that yet). GAT
Thanks for sharing your background. Would you not agree that for any kind of summarization statistics, averages and hence generalizations have to be generated and are expected? And would you not agree that the majority of quant and in fact even many general hedge funds are oftentimes just operating with a quant-overlay, whether it be for marketing or truly for performance purposes. Many of said funds are equity only funds and the majority of times long biased. That at least is my impression when talking with the equity guys in the past (I made markets in rates derivatives and my typical counterpart were funds of the Brevan Howard type)
Yes but there is a middle ground between publishing a full statistically analysis of the numbers and just cherry picking a figure out of the air to support a pre defined clickbait headline. "And would you not agree that the majority of quant and in fact even many general hedge funds are oftentimes just operating with a quant-overlay" I don't understand this statement. "Many of said funds are equity only funds and the majority of times long biased." I don't know what the long bias of the equity quant index is (in fact they don't even say which index it is!) but I'd expect the beta to be considerably less than one, although yes probably positive. GAT