Quant Funds Lag Those with a Human Touch
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Thursday, September 2, 2010

Quant Funds Lag Those with a Human Touch

Human portfolio managers get a boost from the WSJ's quarterly review of mutual funds in an article from Eleanor Laise. It turns out that flesh-and-blood PMs are beating their computer model counterparts at the 65 quant funds tracked by Morningstar.

Those 65 quant funds lag 72 percent of their category rivals over the past three years ending in August, according to the fund tracker.

The article also dusts off the AXA Rosenberg Group LLC [see profile] debacle of last April when the money manager disclosed that a 2009 "coding error" had altered its stock selections.

Among those interviewed by the paper is Andrew Lo, a finance professor at MIT and a quant fund PM who handles the recently-opened Natixis ASG Managed Futures Strategy [see profile]. Lo admits that quant PMs need to think more like biologists and less like physicists.

Another PM the paper talks to is Lee Schultheis, president of Hatteras Alternative Mutual Funds [see profile]. His Alpha Hedged Strategies has dropped its quant allocation to 15 percent of the portfolio from 20 percent previously.

The article's "expert" source is Chris Thompson, head of the global equity manager research team at Rogerscasey. Thompson points to a "overcrowding" of quant trades in 2007 that meant "everything got blown out of the water."

Among the mutual funds hit was Icon Core Equity, admits Craig Callahan, president of Icon Advisers Inc.[see profile]

Another disappointment highlighted in the article is Janus' Intech Investment Management LLC. None of the Intech quant strategies have topped their benchmarks through March, reports the paper.

Khalid Ghayur, co-manager of the just-launched Westpeak ActiveBeta Equity does win a positive mention for its openness. "Investors know exactly what they're buying," Ghayur tells the paper.

Bridgeway Capital Management Inc. [see profile] founder John Montgomery is also quoted in the article.

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