Topic 2: Why mutual funds are launching quant funds
India’s mid-sized money managers are counting on rule-based mathematical models to tap a new breed of investors embracing equities.
Quant strategies, which fall somewhere in between active and passive trading, seek to reduce the role of human bias. They follow a data-driven approach to pick stocks, using pre-defined parameters such as momentum or valuation. Still, their performance globally has been mixed, and greater volatility has made it hard for them to compete with cheaper index funds.
In India, too, their success has been limited. The Nippon India Quant Fund, the nation’s oldest, has often struggled to beat its benchmark over both short- and longer-term horizons. It is now adjusting the methodology of its stock selection to bolster returns. Corporate governance failures, which machines can’t factor in, have also been responsible for the poor performance. Conflicts within founders’ families have had a more significant impact than in developed markets.
Quant strategies, which fall somewhere in between active and passive trading, seek to reduce the role of human bias. They follow a data-driven approach to pick stocks, using pre-defined parameters such as momentum or valuation. Still, their performance globally has been mixed, and greater volatility has made it hard for them to compete with cheaper index funds.
In India, too, their success has been limited. The Nippon India Quant Fund, the nation’s oldest, has often struggled to beat its benchmark over both short- and longer-term horizons. It is now adjusting the methodology of its stock selection to bolster returns. Corporate governance failures, which machines can’t factor in, have also been responsible for the poor performance. Conflicts within founders’ families have had a more significant impact than in developed markets.