Quant Funds - Fund management with Mathematics

In one of my earlier posts, i have discussed about "Active investments". Investments which are actively managed by the fund manager i.e., the fund manager himself is involved in taking the calls about what to buy and what to sell are termed as active investments.

Far away from the above concept, investors are going to witness the lauch of many Quant funds in India very soon. The only difference being that, in case of quant funds, the Fund manager devices a mathematical algorithm which is based on the statistics of the market and the behaviour of various stocks over a large period of time. But the point here is, Can the market be timed based on the statistics, which actually is a history? No one knows.

The entire stock selection is based on the quantitative analysis. A mathematical formula gives the fund manager a basis to identify the stocks for selection to make up his portfolio. Each fund house will develop its own algorithm which becomes its intellectual property. Even before these quant funds are open for subscription, they are rigorously tested, simulating different market conditions.

In fact, quant funds have been around since late 70's outside indian markets. Lotus India AGILE fund is India's first Quant Fund. Reliance has its own quant fund from its stable named Reliance Quant Plus Fund.

The hard thing to digest is that the quant funds have seldom performed well. Lotus India AGILE fund which was mentioned earlier had a poor performance compared to its Index benchmark.