When is a quantitative fund?

Quantitative funds are a type of mutual fund in which asset allocation, including stock selection, is determined by a set of investment rules and limits. The fund invests in assets based on digital data collected through research and quantitative analysis. These are considered non-traditional and passive funds. To determine the investments, they are built with models and specialized software. Quantitative funds rely on an automated mechanism to make portfolio decisions, and the fund manager will have no input on this.

Risks and Benefits

Although quantitative funds are immune to fund management bias, the stock selection mechanism is opaque because each fund maintains its “secret” model and does not publicly disclose it. Another danger is that the performance of these funds cannot be compared to benchmarks such as Sensex or Nifty. As for the pros, investors in quantitative funds don’t have to worry about fund management quitting, making mistakes, or deviating from the fund’s purpose. However, eliminating human biases does not guarantee that the fund will perform exceptionally well. This is because quantitative funds are based on historical performance, which is never a reliable predictor of future results.

Is it good for the investment?

Quantitative funds choose stocks solely on the basis of quantitative data, which means they may lose stock market movements due to qualitative information such as company ethics, board effectiveness, administration and other intangible variables difficult to quantify. Investors with a conservative or moderate risk appetite should avoid quantitative funds. However, as a diversification strategy, ambitious investors may consider investing a modest percentage of their overall investment in quantitative funds.

The point is, it’s good to invest in every fund if it meets your investment needs and fits your portfolio. However, before investing, investors should get a feel for each type of fund and assess the benchmark to compare performance.