DEFINITION of Quant Fund
A quant fund is an investment fund that selects securities using advanced quantitative analysis. In a quant fund, the managers build customized models using software programs to determine the fund’s investments.
BREAKING DOWN Quant Fund
Quant funds are characterized by their reliance on algorithmic or systematically programmed investment strategies. A quant fund can be one of many investment offerings supported by a large asset manager or it can be the central management focus of a specialized investment manager. Quant fund offerings have been growing and the business has become established in the industry with quant fund managers reportedly responsible for 27% of all U.S. stock trades.
Many large asset managers have increased their investment in quantitative strategies as fund managers continue to struggle to consistently beat market benchmarks over time. Smaller hedge fund managers also round out the total quant fund offerings in the investment market. Overall, quant fund managers seek talented individuals with accredited academic degrees and highly technical experience in mathematics and programming.
Fueling the growth of quant funds has been increasingly higher access to a broader range of market data and the growing number of solutions surrounding big data. Developments in financial technology and increasing innovation around automation have vastly broadened the data sets quant fund managers can work with, giving them even more robust data feeds for broader analysis of scenarios and time horizons. Thus, quant fund programming and quantitative algorithms have thousands of trading signals they can rely on ranging from economic data points, to trending global asset values and real time company news. Quant funds are also known for building sophisticated models around momentum, quality, value and financial strength using proprietary algorithms developed through advanced software programs.
Quant funds are often classified as alternative investments since their management styles differ from traditional fund managers. As such, they typically charge relatively higher management fees. Their offerings are also more complex than standard market investment funds. In some cases they may target higher net worth investors or have high fund entrance requirements. Investors will find these strategies in regulated mutual funds and exchange-traded funds. Hedge funds are also known for offering quantitative investment offerings with less regulated management requirements.
Investment Industry Quant Funds
Quant funds are often known to be some of the most innovative and highly technical offerings in the investment universe. As such, they encompass a wide range of thematic investment styles and often deploy some of the industry’s most groundbreaking technologies. Below we take a look at some of the market’s top quant funds and managers.
Man Group is one of many investment managers embracing the movement towards machine learning and artificial intelligence powered quant models. The firm’s AHL Dimensions Funds are managed with a quantitative strategy driven by machine learning which integrates real time analysis and market news on fund investments globally using financial reports and market trending patterns. The Man Group’s AHL Dimensions Funds are primarily targeted for institutional investors.
AI Powered Equity ETF (AIEQ)
The AI Powered Equity ETF is another example of a quant fund using artificial intelligence. The Fund is structured as an exchange-traded fund (ETF). It has an expense ratio of 0.75%. Its fund investments are determined based on a proprietary quantitative model developed by Equbot with IBM Watson artificial intelligence.
Vanguard Strategic Equity Fund (VSEQX)
The Vanguard Strategic Equity Fund is one fund managed by the Vanguard Quantitative Equity Group. The Fund includes mid- and small-capitalization stocks chosen by a computer-driven stock selection process. It has an expense ratio of 0.18%. The Fund is structured as a mutual fund. It offers a quantitatively managed strategy from a well-established, traditional asset manager.