Quant Models Working as Value Funds Struggle: JPMorgan

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JPMorgan CAZENOVE analysts for Equity Quant Strategy (Europe), Marco Dion, Viquar Shaikh and Angelo Pessaris have put together a review of the global Quant landscape for Summer 2013 based on interviews with 350 quant managers in the US, Europe and Asia.

Quants are back in the game

A very encouraging finding is that Quant Models have again started generating positive returns. The in-house proxy Quant Strategies Index shows Quant strategies are working—it is up nearly 6 percent over the first eight months of 2013.

Quant Strategies performance 2013

That’s not all. Given current trends, 2013 might well turn out to be the fourth year on the trot in which quants have delivered positive returns, and the financial crisis may therefore be just a blip in the rear view mirror.


What caused the turnaround?

A combination of factors, such as falling equity correlations and a good performance from quant factors probably helped. For this year, Price Momentum, ROE, Earnings Momentum and Seasonality factors were positive in excess of 20 percent for Long strategies; Net Revisions and PB factors generated over 20 percent for Shorts, while Seasonality (+10.5 percent) and Price Momentum (+7 percent) were big hitters for Long/Short.

The Laggards

The usually dependable, and looked-forward-to Value rally was a damp squib this year. Value factors did their bit in January, but failed during the rest of the quarter. (The first quarter is the usual period when they generate positive returns).


Macro and Trend following models continued on their under-performance this year. To be fair, these strategies made a strong show out of the gates in 2013, but the Fed’s infamous ‘tapering’ threat put paid to their hopes of generating positive returns during 2013. This will likely be the third consecutive year of under-performance for this quant space.

High-frequency trading strategies were clobbered by a fall in volumes across various exchanges, as well as lower market volatility.

Sector trends

Though ‘business-as-usual’ was the 2013 theme, some key trends were highlighted by the report.

It seems Quant managers are spending more time and effort to identify products that could prove popular, rather than introverted analysis of trading models. Examples of these are more equity oriented products, concentrated positions, trading strategies that are more short-term in nature, minimum-variance products and Smart Beta products.

Of the above, minimum variance strategies have done well and are proving popular not least because of their low cost profile.


What’s the buzz?

A survey of conversation centering on quant research threw up the following hot topics.

  • Investigate signals from the derivatives market and their impact on stocks
  • Investigate signals from the bond/credit markets that could impact equities
  • Enhance long-only strategies by writing calls
  • Check out language recognition and news-related algorithms
  • Can quants make inroads into the Asian and other emerging markets?
  • Control risk (or avoid ‘crowded trades’) through the development of in-house mechanisms
  • Sector-specific quant models – can they deliver additional Alpha?

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