Mutual Fund Unlocked: Quant Funds
Mutual fund investors are looking at various smart investment ideas to generate better returns. The mutual fund arena offers a wide basket of the choices to the investors of which quant funds are one of the lesser known funds.
A quant fund is an investment fund which invests in the securities using advanced quantitative analysis. Fund managers of these funds build comprehensive customized models using software programs to determine the fund’s investments.
Quant funds are known for their systematically programmed investment strategies which are based on various algorithms.
Usually in the regular practices a team of analysts or a fund manager analyses various companies and builds a portfolio. On the other hand, Quant funds follow an objective approach while constructing the portfolio. These funds screen all the companies which fit in their specified criteria and see which sectors and stocks are doing well. This practice eliminates the fund manager's authority to shortlist and select a stock. During this, there is no attempt made to understand the nature and business of the company.
Another important aspect is that these funds may not be able to take into account the impact of unexpected changes as these funds use a lot of assumptions which involve historical stock prices, volume growth, earnings, etc. So, if due to some uncertain conditions stock fails to follow its historical patterns, there are chances the model will fail to predict its movement properly.
Returns from quant funds are very volatile. So, investors should always look at a fund's past record. Globally, quant funds have a record of giving downside protection. These funds are more suited for conservative investors.