Globally, quantitative investing is picking a good pace. India is also not behind and we have seen around four quant fund launches in a matter of one year. What is that which makes it so trending? The following example will help you to comprehend the trend better. There is a fund that delivered more than 66 per cent annualized return before fees and 39 per cent after fees over a horizon of 30 years from 1988 to 2018. This is the Medallion Fund, managed by James Harris Simons, the founder of Renaissance Technologies, who has earned the name of being the best money manager on earth for delivering such a spectacular performance.
The said fund is currently open only to employees of Renaissance Technologies and a few other people connected to the firm. It is interesting to know that this firm uses mathematical and statistical methods in order to create and manage its portfolio. Here they apply computer models and algorithms along with other vast sets of data to predict future prices of a particular security. Moreover, it eliminates human error in security selection by keeping behavioral biases at bay which affect the performance of the fund in some or another way. That said, one should never forget that these quant models are themselves designed by humans.
Defining Quant Funds
Quant funds are mutual fund schemes that adopt rule-based investing for short-listing and designing a portfolio of stocks. Such funds have a minimal role of a fund manager as they apply a number of pre-determined filters for picking stocks. Here the role of the fund manager is to review the model annually and tweak it, if necessary.
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