Move over, traditional mutual funds. For, the new sensation in mutual funds is here: a new breed of funds called
quantitative funds, or quant funds for short, which use complex mathematical
models to trade stocks. While the concept has been in existence for quite
some time in developed markets like the US, the trend is somewhat new for the
Indian investors, as only one fund house has so far launched this product in
the domestic market. However, with a few more fund houses all set to enter
the fray, investors will have many more options to choose from. The latest to
latch onto the quant bandwagon is ING Investment Management (India),
which plans to launch two new quant funds catering to the needs of foreign and
Indian investors.
The quant funds, which first emerged in the 1970s, took two decades to hit
the mainstream by the 1990s, only after advanced computing methods could
be developed. Today, these funds manage assets under management worth
more than an estimated $800 bn and are run by 200 fund houses across the world,
of which 120 operate in the US alone. These funds use index investing
principals and computerized security selection for portfolio management. The
increased use of advanced computer modeling for financial data analysis
mainly focuses on Price-to-Earnings (P/E) ratios and earnings growth ratio.
Computers use predefined investment modules to filter thousands of stocks
to identify the ones which have outperformed their benchmarks.
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