Quantitative investing is NOT an investment term that should scare you off, though complicating, it can still be understood, if properly explained.
Here at Questergate, we employ this form of Investment strategy and we are confident that this post will help you understand the basics of what it is.
We explained in simple terms the meaning, advantages, as well as drawbacks of quantitative investing.
Let’s delve right in!
What is Quantitative Investing?
A quant fund (short for quantitative fund) is an investment fund that makes investment choices and executes transactions using mathematical and statistical methodologies, as well as automated algorithms and advanced quantitative models.
Quantitative models use computer-based algorithms to reduce the risks and losses associated with human fund management.
The Quant algorithms utilized by quant funds are intended to spot market investing opportunities without human intervention, using a set of mathematical models that make buy/sell choices.
Like any other investment fund, a quant fund strives to outperform the market by strategically investing in liquid and publicly traded assets.
The goal in terms of finance is to generate alpha (excess return).
The employment of quantitative tactics to beat the market is known as Quantitative Investing.
NOTE: Investment selection and associated decisions are made without the need for human intelligence or judgment in quantitative investing.
It is that simple!
What Are the Advantages of Quantitative Investing?
The quantitative investing strategy has a good number of advantages which is the reason why at Questergate, we use this as one of our strategies for investing, as it is a more secure and strategic form of investing that is safe for our clients and we believe its pros outweighs its cons.
Let’s have a look at a few.
- Quantitative techniques can look at a large number of potential investments, whereas even the finest analysts can only look at a few stocks at a time.
- It bypasses the investors’ deeply ingrained cognitive biases. Our systematic, disciplined strategy keeps emotions away and takes advantage of market inefficiencies caused by human behavior to provide superior risk-adjusted performance for our clients over time.
- Quantitative investment systems follow the rules exactly as they’re written. They don’t stray from the path for emotional or psychological reasons, and they don’t let opportunities pass them by.
- Quant models’ machine learning skills extract insights by evaluating vast amounts of data in real-time.
- Fast decision-making thanks to the automation of a model that can place orders rapidly and profit more effectively from thin pricing differentials
Quantitative Funds’ Drawbacks
- Quant funds rely on historical data, but history does not always repeat itself in exactly the same way.
To guarantee that quant models continue to operate as predicted, they must be rigorously back-tested regularly.
- Some models fail to account for unforeseen events, which might lead to unfavorable outcomes in the case of a black swan event such as a pandemic.
From what we shared in this post, it is evident that the Quantitative investment strategy method has more benefits than drawbacks and is a good form of the investment model.
However, if not properly managed, can get quite complicating and may likely cause you some frustrations.
Therefore it is important to thoroughly understand how a quantitative model works before using it as a strategy for investing.
At Questergate, we have a team of dedicated and experienced analysts who use this strategy to ensure that your investments are safe and will yield the right amount of return in good time.