Quantitative Funds Have the Right Equation
In the past four weeks, investors have increasingly mentioned an interest in high-velocity, short-term trading quantitative managers. Wealth advisors, funds of hedge funds, and consultants are all interested in interviewing algorithm-based managers to see if they can give investors a competitive edge as the global markets begin to ease their downward spiral.
Black box funds, which fell out of favor during 2008 for breaking down in the face of a catastrophic market collapse, are well positioned to evaluate the subtle economic indicators of a potential recovery before it is widely discovered. These high-velocity trading strategies are also highly liquid, and this continues to help drive interest.
An analyst at a midsize family office in London mentioned that his firm is currently turning to quantitative funds with the hope that the financial indicators that signal an economic recovery will trigger these funds to make correct directional bets and earn substantial profits. Timing is everything in a market recovery, and investors are betting that complex algorithms can predict an upturn ahead of fundamental analysis, which takes far more time.
Whether black box funds will be the first to position themselves for a recovery remains to be seen. However, BHA will continue to monitor this trend throughout the remainder of 2009.