Goldman’s Rebuilt Quant Approach

When quantitative equity funds experienced a meltdown ten years ago, Goldman Sachs (among the hardest hit) “began to rebuild the strategies with less leverage and more diversity,” according to a recent Bloomberg article. “A decade later,” the article says, “the quant unit has clawed itself back to respectability,” and now manages about $110 billion. But the team faces stiff competition, “with almost every asset manager chasing quant money, betting on similar factors and shaving fees on exchange-traded funds to near-zero.” The article explains that the Goldman unit now “uses leverage in only some offerings and monitors markets for signs that […]

Jason Zweig: Use Simple Tests Before Investing in a Quant Fund

In a recent article for the Wall Street Journal, Jason Zweig offers some tips on how an investor can devise his own quant strategy. “Perhaps it is cheaper to learn from the quants than to hire them,” he argues. Zweig shares findings of a Duke University group of researchers that found, during the period from 1996 to 2014, “systematic funds (which describe themselves with such words as ‘algorithmic’, ‘computer-driven’, or ‘statistical’) performed about the same as traditional ‘discretionary’ funds that claim to use human judgement to pick holdings.” The complex algorithms used by many of Wall Street’s quants, Zweig suggests, […]

Quant Strategies Are Not Magic

 The flow of funds into the quant investment strategies continues but, like most new ideas, this one doesn’t come without caveats, writes Validea CEO John Reese in a recent Forbes article. Reese argues how quant strategies shouldn’t be considered a magic bullet, but rather a tool to thwart an emotional approach to investing. He underscores the advantage of the type of blended approach used by Validea, and identifies the following picks identified using his stock screening models: Accenture PLC (ACN) provides management and technology consulting services. The company earns high marks for its predictable and stable earnings-per-share as well as […]

Stock-Pickers Beware: Bots Are Here

BlackRock’s March announcement that the firm had reduced its staff of stock pickers to increase its focus on quant strategies may support the consensus that “active management is dying,” but Bloomberg columnist Nir Kaissar argues that “the problem is not that active managers fail to outperform the market; it’s that they keep that outperformance for themselves through high fees.” “Smart beta” index funds, on the other hand, have been able to beat the market at very low-cost to the investor. Kaissar offers data (provided by Dartmouth professor Kenneth French) showing that a “simple quantitative strategy” could have generated the same […]

Twitter and the Fed

Research shows that trading strategies built around tweets in the days preceding Fed meetings have been profitable, writes Steve Russolillo in this week’s The Wall Street Journal. As the use of quantitative investment strategies continues to rise, social-media platforms such as Twitter have become popular sources of intel to gauge investor sentiment, says Russolillo, referring to the frequency and impact of the president elect’s tweets since the election. A study conducted by Andrew Lo, a finance professor at MIT’s Sloan School of Management, and Ph.D. student Pablo Azar analyzed 3.9 million Fed-related tweets from 2007 through 2014 and assigned scores […]

Quant Strategies Continue to Evolve

While the financial crisis of 2007 spurred a lot of questions regarding the role that quantitative investment strategies played in the market’s drop, these strategies continue to evolve, writes Validea CEO John Reese in this week’s Forbes. Reese gives an overview of the evolution of quant investing, which has been used for decades, and the more recent move toward incorporating big data. He points out, however, that there are concerns related to data accuracy and collection methods and emphasizes the fundamental, quantitative-based guru strategies behind Validea’s stock screening models. He offers the following high-scoring picks: LG Display Co. Ltd. (LPL) […]

Big Data Doesn’t Automatically Mean Big Investment Returns

The quant craze in investing doesn’t come without its own set of challenges, says a recent Bloomberg article. As hedge funds delve headlong into the data world to hoist up returns and stay competitive, some may lack the prowess necessary to harvest relevant and accurate numbers, says Matei Zatreanu, who led the charge at $19 billion hedge fund King Street Capital Management. “There are those who realize their industry is changing and their fund isn’t going to exist if they don’t adapt,” he says, adding, “but not many of them know what they are doing, except a few.” The problem […]

Quant Strategy Pros and Cons

Anthony Ledford, chief scientist at U.K.-based investment management firm Man AHL, has mixed feelings regarding the hype around quantitative models and their potential impact on the hedge fund industry. In a recent Bloomberg article, Ledford (who holds a Ph.D. in mathematics) says, “There is some real science here, but it’s not the way it’s been portrayed. Some of it is really marketing, and that’s the bit that annoys me.” The article asserts that the recent move by hedge funds to boost poor performance by using quant strategies has “collided with a sober reality. The technology….requires a heavy commitment of time […]

Stock Picks Based on Quant Strategies

As hedge funds continue to lose clients due to lackluster returns, purely numbers-based investment strategies are gaining popularity. Validea CEO John Reese speaks to the trend in a Nasdaq article published last week. Like those of our guru-based screening models, these strategies are built purely on the underlying fundamentals of a business. The following picks from our quant investment-based strategies of James O’Shaughnessy, Joel Greenblatt and Joseph Piotroski were identified: Thor Industries, Inc. (THO) manufactures and sells recreational vehicles throughout the U.S. and Canada. Persistent growth in earnings-per-share, modest price-sales ratio, and return-on-total capital of 62% earn high scores for […]

Hedge Funds Hungry for Quants

If you’re looking to land a job at a hedge fund, polish up your algorithm building and data mining skills to get to the front of the line. This according to a recent Bloomberg article that explains how hedge funds are hiring quants “like never before in search of an answer to lackluster returns.” King Street Capital Management and Tudor Investment Corp. are among the names anxious to beef up their data analysis and research operations, according to Michael Karp of New York-based recruiting firm Options Group (who has been working in the industry for 25 years). And these jobs […]

Investors Looking to Quants for Fund Management Muscle

As hedge fund managers continue to grapple with losing dissatisfied clients, those funds more highly-focused on a computer-driven approach (so-called “quantitative” hedge funds) are standing out, the Financial Times reports. According to FT, the flow of investor funds into the “quant” sector have more than doubled since 2009 (from $408 billion to nearly $880 billion). Several large hedge funds are increasing investments in quant strategies “as they search for new—and potentially more reliable—ways to produce returns.” Tony James, chief operating officer of Blackstone, was quoted as saying, “Frankly, we expect to see assets move from human managers to machine managers.” Paloma […]

Build a Real Portfolio Using Stock Screens

The advent of stock screening software has made it possible for investors to search using any number of metrics, but that’s only part of building a successful investment portfolio. This complex process is the subject of an article by John Reese, founder of Validea Capital Management LLC., in the July issue of The American Association of Individual Investors Journal. Reese asserts that, while stock screening models are a helpful tool, they don’t provide all the information an investor needs. Here is a summary of his guidelines: Choose a Screen You Believe in: With the myriad stock screens available, you should […]

Coming to Your Doorstep: Automated Investment Management

“Humans aren’t going to be completely replaced, but they will be mostly replaced,” says Sudhir Nanda, head of T. Rowe’s dedicated “quantitative management” arm. In a Financial Times article earlier this year Nanda, who manages T. Rowe’s Diversified Small-Cap Growth Fund, predicted that the traditional management industry will become increasingly technology driven. He is not the first to turn his attention to this trend. Many asset managers (BlackRock and Goldman Sachs Asset Management included) are dedicating resources to new technology in an effort to stay current in the keenly competitive world of investing. Andrew Haldane, the Bank of England’s chief […]

Fundamentally Sound Stocks Win When Recessions Loom

Whether it’s interest rate hikes or China’s slump or US weakness, investors have found a myriad of economic reasons to worry in 2016 — and they’ve expressed their worries by pulling billions of dollars out of stocks. But in his latest for Canada’s Globe and Mail, Validea CEO John P. Reese highlights some new research showing that the best time to beat the market is when economic times are tough. “The research comes from O’Shaughnessy Asset Management (OSAM), which is headed by quantitative investing guru James O’Shaughnessy,” Reese writes. “The group invests using a number of ‘factors’ — that is, […]

When Should You Rebalance?

Like many quantitative investors, Validea CEO John P. Reese uses a strict rebalancing approach to portfolio management. But just how often should you rebalance your portfolio? Reese says it may depend on the type of strategy you are using. “Rebalancing forces a disciplined buy/sell methodology into the investment process, removing emotions and biases that oftentimes hurt performance,” Reese writes in his latest column for Canada’s Globe and Mail. “Ben Graham – the man known as the ‘father of value investing’ – would have considered rebalancing (even on an annual basis) speculative in nature, but when a stock’s fundamentals change and […]