Biggest risk to quant funds is loss of confidence, says QMA chief
Computer-driven investment strategies lost 5.6 per cent in 2018
Computer-driven funds must stick with their strategies after a tough year in 2018, said Andrew Dyson, chief executive of QMA.
Mr Dyson, who leads the quant unit of PGIM, Prudential Financial’s funds arm, said underlying market conditions were no great threat to quantitative investment strategies.
“The much bigger risk is that we lose confidence and row back,” he told the Financial Times. “That’s the biggest psychological risk.”
Quant funds as a whole lost 5.6 per cent last year, according to data from HFR. They were stung particularly in February, October and December — months marked by heavy declines in stock markets and also at times by unusual parallel losses in bonds.
Several of QMA’s funds posted double-digit losses, including its International Equity, Mid-Cap Value and Small-Cap Value funds. Its US Core Equity strategy underperformed its benchmark by more than 2 percentage points, after four years of outperformance.
Nevertheless, QMA announced in November that it had bought Wadhwani Asset Management — a computer-driven hedge fund named after founder Sushil Wadhwani, a former banker and Bank of England policymaker. That deal completed in January and Mr Dyson said integration was going well.
QMA is not looking for more purchases, Mr Dyson said, with “no sprees, no hunts” for new targets. However, it is not changing its typical investment style despite violent shake-ups in core markets and periods where traditional relationships between assets have stumbled, upending widely used hedging strategies.
“Last year was difficult for value strategies,” Mr Dyson said. “It was very unusual because diversification did not harm but it did not help.
“The art is to stick to it. If you did, you are already benefiting this year.” QMA’s worst-performing funds in 2018 started the new year much brighter.
“I absolutely do not see” that underlying market conditions have changed in a way that makes quant strategies unworkable, he said, arguing that wobbles were inevitable now that central banks’ market stimulus is being withdrawn. “You stick to your guns,” he said. “If you start chasing the game, then you have lost.”