A Penny Saved

A new class of Mutual Fund called a Quantitative or Quant fund seems to do just that.  The funds are managed by computers.

Quant funds can come in different flavors. Those like the Vanguard Strategic Equity fund, which is closed to new investors and was up 5.9 percent this year through June, let the computer model make practically all the decisions, from which stocks to buy and sell to when to trade them. Other funds, like the Quant Foreign Value fund, up 11.1 percent, use quantitative analysis as a screen to narrow down a basket of stocks. The final investment decisions in this type of fund are then made by carbon-based life forms.

Quantitative techniques emerged in the early 1970’s and gave birth to the index fund in 1971, when Wells Fargo introduced a mutual fund that tracked 1,500 stocks on the New York Stock Exchange. As computer-processing power grew and more physicists and mathematicians left academia for Wall Street, money managers offered more robust services, and institutional investors began to embrace quantitative management for the advantages it offered.

The most obvious advantage is that quantitative models can examine a much larger universe of stocks than human analysts. Schwab Equity Rating, for example, analyzes about 3,000 stocks and assigns grades of A through F, based on four metrics: fundamentals, valuation, momentum and risk..

Would you trust your money to a computer?  They outperform their averages.  They don’t make silly mistakes like a human manager would.  Perhaps it’s time we look into Quant funds a little more?

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