Investing in Quant Funds – All You Need to Know

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Automation has made its way in just about every industry one can name and similar is the case in the financial sector as well. There are many different areas of the financial industry where automation has already replaced manual input, and it continues to advance in other areas at a rapid pace. One such area is mutual funds where the phenomenon of quant funds was recently introduced. It uses quantitative analysis to calculate the market trends, benchmark indices performance, past performance and movement of the sectors, equity performance, and a wide range of other parameters to invest strategically. It completely eliminates the factor of human biases in making investment decisions and tries to stay ahead of the market to provide greater returns to the investors.

What is Quant Fund?

The investment decision in the quant fund is done based on the pre-defined rules based on statistics and follows a result-oriented mathematical model. Even though there is a fund manager to take care of the operations of the quant fund, the investment decisions and entry and exit of the funds is done following an automated program. The quant fund manager does have limited control over the decisions made by the automated program in terms of the sector it chooses to invest in and the portfolio choices. The quantitative investment model has been in use for many years now in the financial industry. It has been in use to manage the hedge funds already. With the growing interest and the improvements in the model, any person with a little time to monitor the market or who do not want to hire someone are readily depending on quant fund to make profitable investments.

Significance of Quantitative Model

One of the key benefits of using an automated program that follows the pre-defined investment model to manage a mutual fund is that it would eliminate human errors and biases. It is what usually leads to huge losses at times for which the investors have to suffer. The pre-programmed model following the quantitative analysis would pick the stocks that are less volatile and vulnerable and inclined towards higher returns. The key focus of the quant mutual fund is to offer consistency and reliability to the investors irrespective of the market trends. Moreover, the quant funds would have lower expense ratio as it follows a somewhat passive fund strategy, and there are fewer operational costs involved. It is safe to say that quant funds have created a category for itself that lies between the passive funds and active funds. It tends to pick the best traits of these two funds while improvising on it to deliver substantial returns to the investors.

Benefits of Investing in Quant Funds

Quant mutual funds have been gaining popularity in recent years because of the many benefits that it has to offer to investors. Investment is made simple with quant funds as long term investors can easily wait for the strategy to play out by investing in them. It is most suitable for those investors who are not looking for quick gains but want long term profits. The investors also do not have to worry about heir broker leaving their job and to find a new one and build a rapport with them over time. Since quant funds are automated, the chance of mistakes is highly reduced, allowing the investors to get the returns that they expect from them.

Even though quant mutual funds offer many advantages to investors, one has to be careful when investing in the. Since they are based on historical data, the results might not always hold good for the future. As the prices are always going up, the returns might reduce owing to it. It is important to study the quant model more closely before you decide to use it. No one can perfectly predict how the market will behave, not even software, but it can be pretty close to it. Thus, some amount of risk is always there. But, still, the benefits of quant funds cannot be ignored as more and more people are taking advantage of them. If you have been thinking of trying it for a while, it is best to learn about it in-depth and then to put in a small amount of money to see how it works.


Image Credits: Roman Synkevych

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