These days, the trend of investing has changed a lot, and one such investment option that is gaining popularity among the masses is Quant Mutual Funds. These mutual funds have come into the picture with a new concept of investment, where in stocks are identified using AI and other complex algorithms. Hence, in today’s blog I will be talking about what are Quant Mutual Funds, how do they work, and would they be the right investment option for you.
What are Quant Mutual Funds?
In simple words, Quant Mutual Funds are funds that are founded on strategies of quantitative investing. That is these funds don’t employ managers to make decisions; rather they are run on computer mathematical models. Instead of dealing with emotions or even picking individual shares, these algorithms develop the portfolio of stocks based on past data, trends and gauging various financial parameters.
This implies, such funds are devoid of any human bias and emotions which is quite often in traditional mutual funds, where fund managers act subjectively in picking stocks for the fund.
How do Quant Mutual Funds work?
Quant Mutual Funds boast of cutting-edge technology. These funds gather machine data patterns from the market. In other words, the stock market data its price trend, its volume, its volatility index etc turns into numbers and goes through computation.
Algorithmic Investment: Such kind of investment funds relies on certain quantitative existing models that analyze a million data per second and update the structure of the portfolio on the fly.
Backtesting: Backtesting goes hand in hand with quantitative model development. That is where past performance of the strategy is tested using the available data.
Diversification: Such algorithms driven investments are most of the times dynamic in nature. They tend to avoid risk by focusing on several stocks.
Speed and Efficiency: With algorithms, speed and accuracy is guaranteed, so decisions requiring time limitation can be made.
Advantages of Quant Mutual Funds
Informed investment decisions – There is no feeling involved in the process of making any decisions in quant funds. Only facts and figures are taken into consideration thus mitigating chances of losses.
Discipline – Algorithms are very disciplined. That is, they operate for a given period of time and do not concern themselves with events in the market.
Risk mitigation – Constant changes to the portfolio made by a quantitative fund allows to effectively manage risks in this fund.
Comparative Cost: During standard investment managers, cost associated with resources employed is high however, in case of automated managing patient rethed quant based funds are cheap.
What are this type of funds, how are they called – Quant Mutual Funds?
Though more and more investors are starting to understand what Quant Mutual Funds are, many investors may not find them appealing. However, if more focused decision making and interpreting technical data seem interesting to you, then these funds could be ideal for you. On the other hand, if you are more comfortable with the ways of traditional fund managers – you may find it difficult to come to terms with these funds.
What are the risks of investing in Quant Mutual Funds?
Quant Mutual Funds struck as rather creative and modern alternative investment; however, one should also assess their risk taking capacity as well as objectives before putting money into them. However, if you are an investor who believes in quantitative analysis and systematic approaches to investing, you would find these mutual funds worth considering. However, if you require something more conservative, or you don’t try it.