The End Of The Quant Bloodbath?Despite Turbulent Market, The Quants May Be Making A Comeback

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What some have called the “perfect storm” that has hit the performance of StatArb quant funds in the past two weeks may be coming to an end. StatArb funds have seen a big rebound in their portfolios today, according to sources familiar with the situation. Since many quant funds follow similar strategies based on computer models, better performance in some funds may indicate a widespread recovery.
A turnaround for the quant funds would not be entirely unexpected. Some analysts have been urging caution about panicking over recent results.
“We searched through history trying to find events when factor correlations were increasing and when the 5-day rolling returns for all four factors (value, quality, momentum and revisions) were negative. We found that all four factors tend to recover in the next 20 days and correlations revert back to more normal levels,” a report issued by Citigroup yesterday said.
Others are warning that too strong and too sudden of a recovery may indicate that the markets have not yet reverted to “normal levels” predicted by the optimists.
“It’s still not in the models. This is still abnormal performance. One day’s outperformance doesn’t mean things are fixed,” a hedge fund manager told us. (A word of caution: his fund is not a quant fund and we suspect he’s enjoying the destruction of his robotic peers.)

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