- Date : 21/03/2023
- Read: 4 mins
Not able to decide on investing in Quant funds? Here's everything you need to know about Quant investment.
Mutual funds have emerged as a preferred investment option in India. For a retail investor, mutual funds provide the attraction of a higher return than stocks. The penetration of advanced technology, like AI and ML, adds new dimensions to mutual funds like Quant funds. This article reviews the following topics:
- What are Quantitative or Quant Funds?
- Types of Quant Funds
- How do Quant Funds operate?
- Features and Benefits of Quant Funds
- Is Quant Mutual Fund Safe?
- Top Quant Funds: Which One to Choose?
What are Quantitative Funds?
Quant funds are a type of mutual fund that uses advanced quantitative models, algorithms, and advanced statistical techniques to make investment decisions.
Types of Quant Funds
Several factors like yield, value, size, liquidity, momentum, and many others characterise and influence the risk and return of financial assets. Based on the analysis model used, there are two types of quant funds:
Single-Factor Quant
Single-factor Quant involves the selection of the final portfolio of companies through an analysis of specific common factors. For example, the Quant analysis universe may begin with the NIFTY 500 companies. A subsequent shortlist is generated through quantitative techniques on any particular factors like valuation or return on investment, market behaviour, etc.
Multi-Factor Quants
Multi-factor Quant uses advanced quantitative modelling for two or more factors. While the basic concept is the same, a multi-factor analysis is more complex. However, it may offer better reliability.
Also Read: Quant-based equity mutual fund schemes available in India
Features and Benefits of Quant Mutual Funds
Higher Success Probability
Quant portfolios are decided after extensive testing of market data through advanced modelling techniques. The use of AI and ML allows substantial real-time data analysis. Therefore, the results are also more predictable and accurate than funds managed by investment managers.
No Human Biases
With the use of AI and mathematical models and an objective approach, quant portfolios are free from individual biases and present a neutral picture.
Transparent Model
Fund managers do not usually share their working models and logic with investors. At times of downturn of stocks, investors often blame managers for incomplete guidance. With Quant funds, the process is transparent.
Scalability
Since the recommendations of a quant portfolio are based on a method of design and testing, the scalability of investments for given markets is easy.
Faster Decision-Making
Using AI and other quantitative models leads to faster decisions and order placements by investors.
Cost-Effective Option
Quant funds follow a consistent operational strategy resulting in lower management fees than traditional mutual funds.
How Quant Funds Operate
There are three stages in the quant investment process:
- Input System: Company data, such as revenue growth, cost of capital, ROI, etc., and market data, such as interest rate, inflation, GDP, volatility, and more, are taken as system inputs. Initial screenings of companies happen at this stage.
- Forecasting Process: The designed mathematical model provides estimations based on the inputs. The evaluation is done at this stage.
- Portfolio Recommendation: An optimum portfolio is constructed from the forecast based on the set objectives like desired returns, risks, and other factors. Respective Weightage is assigned to each stock under review with the final aim in mind.
Risks and Safety: Is Quant Mutual Fund Safe?
All investments, including Quant Funds, have market risks.
Quant models use data analysis and testing to provide an optimal solution. However, the absence of continuous data analysis may sometimes result in undesirable outcomes.
Quantitative fund techniques depend on several assumptions. In reality, however, market conditions may be different.
With the rapid growth in technology, forecasting models are changing fast. Therefore, their models may become ineffective unless quant funds adapt to newer methods regularly.
Top Quant Funds: Which One to Choose?
Investment decisions require thoroughly studying the financial instrument and the market conditions. Indicative Performance of some of the top funds (periodic returns):
- Quant Active Fund-Growth (CRISIL Rating 5*)
6 month: (-) 5.11%; 1-Year: 7.32%; 3-Year: 36.32%
- Quant Small Cap Fund-Growth (Rating 5*)
6 month: (-) 4.60%; 1-Year: 1.95%; 3-Year: 28.20%
- Quant Absolute Fund-Growth (Rating 5*)
6 month: (-) 5.97%; 1-Year: 10.15%; 3-Year: 31.24%
Source
For additional information, you may consult an advisor, and also check the following sites:
https://www.etmoney.com/mutual-funds/fund-houses/quant/9doGetFundDetails=yes&mfdId=13524
https://www.sebi.gov.in/sebiweb/other/OtherAction.do?doGetFundDetails=yes&mfdId=13524
Mutual funds have emerged as a preferred investment option in India. For a retail investor, mutual funds provide the attraction of a higher return than stocks. The penetration of advanced technology, like AI and ML, adds new dimensions to mutual funds like Quant funds. This article reviews the following topics:
- What are Quantitative or Quant Funds?
- Types of Quant Funds
- How do Quant Funds operate?
- Features and Benefits of Quant Funds
- Is Quant Mutual Fund Safe?
- Top Quant Funds: Which One to Choose?
What are Quantitative Funds?
Quant funds are a type of mutual fund that uses advanced quantitative models, algorithms, and advanced statistical techniques to make investment decisions.
Types of Quant Funds
Several factors like yield, value, size, liquidity, momentum, and many others characterise and influence the risk and return of financial assets. Based on the analysis model used, there are two types of quant funds:
Single-Factor Quant
Single-factor Quant involves the selection of the final portfolio of companies through an analysis of specific common factors. For example, the Quant analysis universe may begin with the NIFTY 500 companies. A subsequent shortlist is generated through quantitative techniques on any particular factors like valuation or return on investment, market behaviour, etc.
Multi-Factor Quants
Multi-factor Quant uses advanced quantitative modelling for two or more factors. While the basic concept is the same, a multi-factor analysis is more complex. However, it may offer better reliability.
Also Read: Quant-based equity mutual fund schemes available in India
Features and Benefits of Quant Mutual Funds
Higher Success Probability
Quant portfolios are decided after extensive testing of market data through advanced modelling techniques. The use of AI and ML allows substantial real-time data analysis. Therefore, the results are also more predictable and accurate than funds managed by investment managers.
No Human Biases
With the use of AI and mathematical models and an objective approach, quant portfolios are free from individual biases and present a neutral picture.
Transparent Model
Fund managers do not usually share their working models and logic with investors. At times of downturn of stocks, investors often blame managers for incomplete guidance. With Quant funds, the process is transparent.
Scalability
Since the recommendations of a quant portfolio are based on a method of design and testing, the scalability of investments for given markets is easy.
Faster Decision-Making
Using AI and other quantitative models leads to faster decisions and order placements by investors.
Cost-Effective Option
Quant funds follow a consistent operational strategy resulting in lower management fees than traditional mutual funds.
How Quant Funds Operate
There are three stages in the quant investment process:
- Input System: Company data, such as revenue growth, cost of capital, ROI, etc., and market data, such as interest rate, inflation, GDP, volatility, and more, are taken as system inputs. Initial screenings of companies happen at this stage.
- Forecasting Process: The designed mathematical model provides estimations based on the inputs. The evaluation is done at this stage.
- Portfolio Recommendation: An optimum portfolio is constructed from the forecast based on the set objectives like desired returns, risks, and other factors. Respective Weightage is assigned to each stock under review with the final aim in mind.
Risks and Safety: Is Quant Mutual Fund Safe?
All investments, including Quant Funds, have market risks.
Quant models use data analysis and testing to provide an optimal solution. However, the absence of continuous data analysis may sometimes result in undesirable outcomes.
Quantitative fund techniques depend on several assumptions. In reality, however, market conditions may be different.
With the rapid growth in technology, forecasting models are changing fast. Therefore, their models may become ineffective unless quant funds adapt to newer methods regularly.
Top Quant Funds: Which One to Choose?
Investment decisions require thoroughly studying the financial instrument and the market conditions. Indicative Performance of some of the top funds (periodic returns):
- Quant Active Fund-Growth (CRISIL Rating 5*)
6 month: (-) 5.11%; 1-Year: 7.32%; 3-Year: 36.32%
- Quant Small Cap Fund-Growth (Rating 5*)
6 month: (-) 4.60%; 1-Year: 1.95%; 3-Year: 28.20%
- Quant Absolute Fund-Growth (Rating 5*)
6 month: (-) 5.97%; 1-Year: 10.15%; 3-Year: 31.24%
Source
For additional information, you may consult an advisor, and also check the following sites:
https://www.etmoney.com/mutual-funds/fund-houses/quant/9doGetFundDetails=yes&mfdId=13524
https://www.sebi.gov.in/sebiweb/other/OtherAction.do?doGetFundDetails=yes&mfdId=13524
