Hedge Funds Weigh-In on Human Versus Machine Debate

“Humans won’t be obsolete in this lifetime,” according to a recent article in Bloomberg. The article discusses a variety of prevailing opinions about the degree to which automation and big data will displace money managers. Winton, a London-based $30.6 billion hedge fund, told its clients that “people must still make the big decisions,” adding that computers are not ready to make investment elections on their own. Computers may be sufficient to “handle early stages of checking data,” according to the firm, but humans are “better at cross-referencing the irregularities against other sources to draw conclusions.” That said, however, the article […]

Index Fund Pioneer Warming to Computer-Generated Trading

Princeton economics professor Burton Malkiel, who started the first passive index fund for Vanguard in 1976, has experienced a “remarkable change of heart,” according to a recent article in the New York Times. Referencing Malkiel’s revolutionary notion that dart-throwing monkeys could pick winning stocks as well as market “experts,” the article says the “index-fund evangelist” now believes, “Maybe the experts can beat the monkey after all. That is, if the experts are software engineers writing sophisticated algorithms for computer-generated trading.” Malkiel, chief investment adviser for automated investment management firm Wealthfront, recently adopted a new approach they call Advanced Indexing. The […]

Quant Strategies Dominating the Market

The growing popularity of quantitative over traditional investment strategies is causing the “largest gap on record between humans’ and computers’ gross exposure to U.S. equities,” according to a recent Bloomberg article (data provided by Credit Suisse Group AG). The article also provides data from JP Morgan Chase & Co. showing that passive and quant investors account for approximately 60% of all equity assets compared to 30% a decade ago, but says “whether this computer-driven force dictates market moves is another matter.” Maria Vassalou, head of Perella Weinberg Partners LP’s Global Macro Fund, says, “Quants focus on a lot of assets that […]

Jason Zweig on Potential Quantitative Model Crisis

A Ph.D. in Economics and former senior risk manager for Bridgewater Associates, Richard Bookstaber argues that while human judgment along with quantitative modeling can lead to better results than either alone, “when humans put blind faith in quantitative models, that’s dangerous.” This according to Jason Zweig in this month’s Wall Street Journal. The article discusses Bookstaber’s new book, The End of Theory, in which the author argues that computers and mathematical models perform well when drawing from historical data on the assumption that “variables will behave in the future the way they did in the past.” However, Zweig writes, “a […]

BlackRock to Expand Quant Investing

Actively managed funds at BlackRock, the world’s largest fund company, are facing the new reality of quantitative investing, according to this week’s New York Times. The exchange-traded-fund business the firm bought from Barclays in 2009 has seen huge growth, “leaving in the dust the stock pickers who had spurred an earlier expansion for the firm,” according to the article. BlackRock has therefore adopted a plan to consolidate several of its actively managed funds “that rely more on algorithms and models to pick stocks.” This will affect approximately $30 billion in assets under management and result in at least 36 employees […]