Quantitative investment funds, or "quant" funds, are funds that use pre- established rules, and data, to guide their investment decisions. The rules in question can be very simple. For example, an index fund, where assets are automatically bought and sold to track a given index, is a quantitative fund.
But they can also be very complex. They can take in every kind of financial data, from prices on public markets, to the prices of commodities, to inflation forecasts, to GPS tracking of ships, to industrial production forecasts. They can leverage complicated statistical analysis to detect patterns. They can execute investment strategies – whether it’s trend following, or arbitrage, or any other – faster, and with more data, than any human being.
And they can be uncorrelated to the direction of the public markets, while providing an attractive risk-adjusted return.
These factors make them a very useful addition to any portfolio.
While quant funds started out as a niche investment approach, limited to high- net-worth individuals and family offices, they have since gone mainstream, seeing allocations from large institutions like pension funds.
And there is a very good reason for that. Quantitative funds are a strong investment approach in any environment, but they are especially strong in volatile and uncertain market conditions.
And in the Spring of 2023, it is exactly those conditions that should make any investor consider allocating to quant.