Are there still going to be some hedge funds that don't use quantitative strategies to generate alpha?
Everyone knows most of the firms are doing HFTs and using quantitative methods to generate alpha. There are still some hedge funds that do traditional investing and trading without having complicated algos that are doing HFT or other algorithmic trading strategies to generate alpha.
Are we still going to have hedge funds that don't participate in algorithmic trading? Like what are your thoughts on their life spans?
bumping myself for the algo, lol.
Yes there will be - this question has been asked millions of times. Over time you will have more and more quant analyzing data/trends/KPIs that drive a fundamental investment process, but it will be a very very long time until AI ever gets good enough to understand / analyze securities on a fundamentally driven basis and be completely automated. I don't think a computer will ever be able to fully predict whether or not Apple's competitive positioning increases or decreases over a LT time frame, the nuances of their products/services that drive that relative to the market, and how that translates into earnings and cash flow for the business, and how that compares to market expectations/sentiment. Sure it will get better at scalping and trading, interpreting large data sets and the implied moves based on new information, but there is a human component to this because it requires judgement at the end of the day, and we are no where near that point yet.
"most funds used HFT", definitely no! It is rare
What do u call"algo trading", yes most funds use vwaps or various algo to limit market impact for big trades. Most funds have somehow automatise trading in order to avoid wasting PMs time and let them focus on analysis.
But it is not because trades are automaticaly executed that the analysis and the decision making process behind is not discretionary
The most enduring funds are typically the ones that generate alpha in ways that have some sort of moat. Proprietary dealflow, close relationships with existing management teams (PE/VC), labor intensive due diligence/documentation (distressed/ special sits), and there will always be a handful of brilliant out-of-the box thinking fundamental shops that have human capital that can't be replicated
That's what I thought as well, human beings could worth a lot. I like "human capital" term by the way, never heard of it before.
I have one question though, even though those funds are making their decisions based on fundamental analysis, they still use quantitative analysis, right? When they pull some data from the markets, I don't think they'd go one by one, probably they'd have some folks that has the skills and abilities to analyze all that data, right?
I'm studying finance, but recently I started seeing that most of the HFs and PE firms prefer candidates with STEM degrees rather than Business degrees, thus I have decided to change my degree to Statistics. Do you think this is a good way?
fundamental shops aren't applying quantitative methods in the same way quant shops are. It's more data sciency which is then packaged in a way that a fundamental analyst can utilise it. The quant analysis would be a part of the fundamental analysis, not two independent methods usually.
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