BROWSE

Quant Fund

What is 'Quant Fund'

An investment fund that selects securities based on quantitative analysis. In a quant fund, the managers build computer-based models to determine whether an investment is attractive. In a pure "quant shop" the final decision to buy or sell is made by the model; however, there is a middle ground where the fund manager will use human judgment in addition to a quantitative model.

Explaining 'Quant Fund'

If computers can beat world champion chess players, shouldn't they be able to beat the traders on Wall Street? That's the thinking behind quant funds, whose name comes from the term "quantitative analysis". The advantage is that computers aren't swayed by emotion, and they obviously react much faster than a person ever could. The problem is that humans have to program those computers, and even computers can make mistakes when they are programmed incorrectly. Remember the saying "garbage in, garbage out". To take advantage of the power of computers, you still have to figure out a superior investment strategy.

The term "quantitative fund" also doesn't tell you anything about the actual investment strategy being used. Any study of a company or an industry based on quantitative data can be considered a quant strategy.

Quant Fund FAQ

How does quant fund work?

A quant fund makes investment decisions using advanced quantitative analysis. Managers use algorithms and custom-built computer models to pick their investments. The popularity of quantitative analysis within funds has risen recently, partly because of the rising availability of market data.

Are quant funds better?

Quant-based mutual funds have an edge over both index funds and ETFs (Exchange traded funds) because they don't just copy all the stocks in the index unlike the other two.

Do quant funds outperform?

In the first quarter of 2020, only 17% of U.S. large-cap quant mutual funds outperformed their benchmarks after fees, according to Nomura Instinet strategist Joseph Mezrich. That's a much lower rate than fundamental-driven funds–where more than half already beat their benchmarks in the period.

Do quants make a lot of money?

Compensation in the field of finance tends to be very high, and quantitative analysis follows suit. It is not uncommon to find positions with posted salaries of $250,000 or more, and when you add in bonuses, a quant can earn $500,000+ per year.

How much money does a hedge fund startup need?

Average hedge fund startup costs range from $50,000 to $100,000, and first- year operational costs usually total $75,000 to $150,000.

How does hedge fund accounting work?

Hedge accounting tries to reduce the volatility created by the repeated adjustment to a financial instrument's value, known as fair value accounting or mark to market. This reduced volatility is done by combining the instrument and the hedge as one entry, which offsets the opposing's movements.

What should I major in to work at a hedge fund?

Hedge fund managers may have a degree in accounting, finance, economics or business administration. Students develop important analytical skills and learn more about finances, hedge funds and stock investments with their education. Many students also complete an internship with a financial firm.

Further Reading


A quantitative stock prediction system based on financial news
www.sciencedirect.com [PDF]
… Cramer is a former hedge-fund manager who boasts 24% returns over his 13 year tenure … This advantage has led quants to steadily outperform market averages by 2–3% for the past several years … The number of quant funds has increased from just a few in 2001 to over 150 by …

Emotional economic man: Calculation and anxiety in fund managementEmotional economic man: Calculation and anxiety in fund management
www.sciencedirect.com [PDF]
… Cramer is a former hedge-fund manager who boasts 24% returns over his 13 year tenure … This advantage has led quants to steadily outperform market averages by 2–3% for the past several years … The number of quant funds has increased from just a few in 2001 to over 150 by …

The crisis, Fed, Quants and stochastic optimal controlThe crisis, Fed, Quants and stochastic optimal control
www.sciencedirect.com [PDF]
… Cramer is a former hedge-fund manager who boasts 24% returns over his 13 year tenure … This advantage has led quants to steadily outperform market averages by 2–3% for the past several years … The number of quant funds has increased from just a few in 2001 to over 150 by …

Performance Analysis of China's Quant (Hedge) FundsPerformance Analysis of China's Quant (Hedge) Funds
en.cnki.com.cn [PDF]
… Cramer is a former hedge-fund manager who boasts 24% returns over his 13 year tenure … This advantage has led quants to steadily outperform market averages by 2–3% for the past several years … The number of quant funds has increased from just a few in 2001 to over 150 by …

Engineering value, engineering risk: what derivatives quants know and what their models doEngineering value, engineering risk: what derivatives quants know and what their models do
era.ed.ac.uk [PDF]
… Cramer is a former hedge-fund manager who boasts 24% returns over his 13 year tenure … This advantage has led quants to steadily outperform market averages by 2–3% for the past several years … The number of quant funds has increased from just a few in 2001 to over 150 by …

The law and economics of hedge funds: Financial innovation and investor protectionThe law and economics of hedge funds: Financial innovation and investor protection
heinonline.org [PDF]
… Cramer is a former hedge-fund manager who boasts 24% returns over his 13 year tenure … This advantage has led quants to steadily outperform market averages by 2–3% for the past several years … The number of quant funds has increased from just a few in 2001 to over 150 by …

Minsky vs. Machine: New Foundations for Quant-Macro InvestingMinsky vs. Machine: New Foundations for Quant-Macro Investing
jfds.pm-research.com [PDF]
… Cramer is a former hedge-fund manager who boasts 24% returns over his 13 year tenure … This advantage has led quants to steadily outperform market averages by 2–3% for the past several years … The number of quant funds has increased from just a few in 2001 to over 150 by …

Constructing conviction through action and narrative: how money managers manage uncertainty and the consequence for financial market functioningConstructing conviction through action and narrative: how money managers manage uncertainty and the consequence for financial market functioning
academic.oup.com [PDF]
… Cramer is a former hedge-fund manager who boasts 24% returns over his 13 year tenure … This advantage has led quants to steadily outperform market averages by 2–3% for the past several years … The number of quant funds has increased from just a few in 2001 to over 150 by …



Q&A About Quant Fund


How do you determine whether an investment is attractive in a quant shop?

You use computer-based models to determine whether or not an investment is attractive.

Who makes the final decision about buying and selling in a pure quant shop?

The model makes the final decision about buying and selling in a pure quant shop.

What does the term "quantitative analysis" mean?

Quantitative analysis refers to using mathematical models to analyze data.

Is human judgment used in addition to computer-based models in a middle ground approach?

Human judgment may be used in addition to computer-based models when making decisions about buying and selling stocks, but it's not required.

Shouldn't computers be able to beat Wall Street traders as well then if they can beat world champion chess players?

Computers should be able to beat Wall Street traders as well if they can beat world champion chess players because both require quick thinking and reaction time without emotion getting involved with their decisions.

What is a quant fund?

A quant fund is an investment fund that selects securities based on quantitative analysis.

How does a quantitative manager make decisions?

An algorithmic trading quant makes decisions based on sophisticated mathematics and computer science.

Are there different types of quant funds?

Yes, there are different types of quant funds.

What is a quantitative fund?

A quantitative fund is an investment fund that uses quantitative investment management instead of human judgement.

What are the three key components of a quantitative process?

The three key components of a quantitative process include portfolio managers, advanced optimization methods, and sophisticated mathematics.

Can computers beat world champion chess players?

Yes, computers can beat world champion chess players because they don't make mistakes like humans do when they are programmed incorrectly.