Jeff Tjornehoj on "Business for Breakfast" 1060 KRCN Tuesday, November 14, 2006 - Quant Funds
Q: Well, Jeff, here's a subject we haven't talked about in a while: quant funds. What are they and what do they mean to investors? A: First, "quant" is short for "quantitative," which refers to the practice of using statistics and computer models to measure a company's value instead of qualitative practices such as talking to management, clients, and competitors or making investment decisions based on a gut feeling.
These methods have been around for many years and have become far more complex as computing power has improved. Some quant managers feed a dozen variables into their model, others use thousands of variables. They're all different.
Q: So, how does an investor pick one? And do they get different ratings?
A: I think it's often the case that an investor finds a good fund with good ratings, then discovers it's a quant fund. And that shouldn't be a problem. In fact, there are several notable fund managers out there with quant funds: Janus, American Century, Vanguard--there are many.
So, I wouldn't be deterred if I found a good quant fund. Of course, you'll find in the prospectus a real human being (or team of them) behind the fund and not just "Cray SX-6, supercomputer." Someone is still responsible for buying and selling securities.
Q: But how different are they from other funds?
A: Certainly the numbers can vary, but generally speaking they tend to be less volatile. It's fairly rare for a quant fund to be the top performer in a given category, but it's also rare that a quant fund is at the bottom. For some investors, that's appealing.
Q: And how appealing have they been?
A: As a group, fairly appealing. We've seen assets double since 2003, rising from $19 billion to $42 billion today. That's still much less than 1% of all fund assets, although they continue to attract money faster than the industry overall.
Q: In other words we'll probably hear more about them in the future?
A: Yes, I think so. Brokers and planners are getting more comfortable suggesting them and investors are more inclined to accept them. Typical 60-year-olds have been familiar with computers for one-fourth to one-half their lives. But current college grads were born after the first PCs hit the shelves--they've lived their whole life with computing power at their fingertips. Trusting computers is second nature to them.
Q: Interesting. Thanks again, Jeff.
A: You bet.
#
To read more "Business for Breakfast" interviews, please visit the archive.
