How much should we rely on quants?
A decade ago, the brightest graduates all wanted to be traders at Wall Street investment banks, but now they’re climbing over each other to get into quant funds,
Quant trading is on the rise – but I’m not so sure it’ll completely overtake traditional strategies. The numbers coming from quants are looking pretty nice though:
- Quant hedge funds are now responsible for 27% of US stock trades, an increase from 2013’s 14%.
- Quants took in $4.6 billion net new investments during the first quarter while overall, hedge fund businesses had a withdrawal of $5.5 billion.
- Quant hedge funds gained ~5.1% per year on average while run-of-the-mill hedge funds only rose 4.3% within the same five year time span.
Yet within the algorithmic, tech magic going on with quants, there leaves a caveat for investors to keep in mind,
...rendering the world in numbers can give investors a deceptive belief that predictions churned out of computers are more reliable than they truly are. The more investors flock to complicated algorithmic models, the more likely it is some algorithms will be similar to one another, possibly fueling larger market disruptions,
Undoubtedly tech has greatly helped everyone with getting an information edge over one another -- but is it also reliable enough for us to completely automate trading? Which begs the question, what will happen to trading in the next many years? I suspect that traditional trading strategies likely won’t be gone away with but certainly technology can enhance a trading strategy. But in the bigger picture between traditional and algorithmic strategies, who will overtake the other?
What are your thoughts?
