July, 2017 – Quantitative investing has been experiencing a resurgence of interest among investors in alternative investments –fueled by big data, ever-more sophisticated algorithms and increasingly efficient technologies. Given investors’ interest in quantitative investment funds, the New York Hedge Fund Roundtable recently looked at how the alternative investment community views the strategy compared to the way it looks at fundamental investing.
“An Evening of Quantitative and Fundamental Investing,” was the topic of the New York Hedge Fund Roundtable’s June event, where George Hall, the founder, CEO and chief investment officer of Clinton Group, a hedge fund firm with $2.9 billion in assets under management, weighed in on the topic. “Figuring out the right way to hedge is pretty tricky and that’s what the computer does well,” Hall told event attendees. “In our view, the quant model is really good at making a lot of best and identifying attractive stocks… the goal of quant investing is to use statistics and mathematics to get there a little bit faster than the fundamental guys,” he said.
Roundtable members believe that quantitative investing is currently more appealing than fundamental investing. Asked which strategy they believe is most appealing right now, 92% of survey respondents chose quantitative investing.
“Quantitative investing has become extremely attractive to investors because of its ability to mine massive amounts of data and to identify patterns that aren’t necessarily as evident to the human mind,” said Adam Weinstein, President of the New York Hedge Fund Roundtable and a managing director at an alternative asset management firm. “As software programs become more and more sophisticated, quantitative funds are able to rapidly identify everything from anomalies in the market, to correlations between equities and everything from commodities to the outcome of political races.”
New York Hedge Fund Roundtable members had the opportunity to weigh in on this topic both at the Roundtable’s June event, as well as through an online electronic poll.
*Of the respondents to this survey, 24% were fund managers; 18% were allocators; 14% were risk management or trading; 27% were service providers; and 17% were other industry participants.
Following are some of the key findings to this year’s survey, compared with answers to the same questions in recent years:
- Asked whether they believe quantitative and fundamental investing can successfully work together, 91% of respondents said that they believe they can, while 9% do not think it is possible.
- When asked which strategy is more attractive now, quantitative or fundamental, 92% of respondents said they think quantitative investing is most attractive, while 8% believe fundamental is more attractive.
- Given the importance of big data in quantitative investing, respondents were asked whether big data should also have an influence on fundamental investing. 89% of respondents believe it should, while 11% believe it shouldn’t.
- In light of the unpredictable political climate in the U.S., and global issues such as Brexit, respondents were asked whether they believe a quantitative investment approach is appropriate right now or whether investors should steer away from quant funds. 69% of respondents believe that quantitative funds will do well and can handle the unpredictable climate; 22% think that quantitative investing is too heavily reliant on historical trends and that investors should therefore steer clear of the strategy for the foreseeable future; 8% think it would be too difficult for quantitative funds to successfully navigate a quant strategy in the current political climate.
- Asked which strategy investors currently favor more, 52% of respondents said they think that quantitative investing is more popular among investors at the moment, while 48% think that fundamental investing is currently en vogue.
- When asked whether investors’ preference for either quantitative or fundamental investing is based more on the fees tied to each of these strategies, or the strategies themselves, 70% of respondents said they believe that, while fees are important, investors ultimately still care more about the potential returns of the strategies they choose, while 30% of respondents think that fees are driving the strategies investors currently favor.