Quant Strategies Dominating the Market

The growing popularity of quantitative over traditional investment strategies is causing the “largest gap on record between humans’ and computers’ gross exposure to U.S. equities,” according to a recent Bloomberg article (data provided by Credit Suisse Group AG).

quant chart

The article also provides data from JP Morgan Chase & Co. showing that passive and quant investors account for approximately 60% of all equity assets compared to 30% a decade ago, but says “whether this computer-driven force dictates market moves is another matter.” Maria Vassalou, head of Perella Weinberg Partners LP’s Global Macro Fund, says, “Quants focus on a lot of assets that make up their portfolio. They’re less likely to be impactful overall for any particular stock.”

Quant funds add to the “diversity of market participant trading,” says Jaffray Woodriff, co-founder and CEO of Quantitative Investment magazine, adding, “Funds that are completely uncorrelated to everybody else and that also trade a lot of volume are very good for the liquidity of the investment ecosystem.”

The article cites comments by Mark Connors, Credit Suisse global head of risk advisory, who points out that low volatility in the market has squeezed returns for quant strategies, “likely compelling managers to increase their leverage to juice up returns.”