Quant Strategies on Rise as Post-Pandemic Optimism Grows

New research with 100 leading hedge fund managers reveals widespread enthusiasm for quant strategies, SIGTech COO Andrew Little said. Collectively, the hedge fund managers surveyed manage over $231 billion in AUM across European, Asian and North American markets.

Eighty per cent expect institutional investors to increase their allocation to quant strategies over the next year, with 29 per cent expecting a significant increase. Close to three in four (73 per cent) believe the current climate is conducive to quant strategies, while almost 90 per cent expect the number of quant funds to increase over the next five years

When asked which quant strategies and asset classes are likely to see the biggest increase in inflows over the next 12 months, the hedge fund managers interviewed predicted FX and equities will see the largest rise, followed by rates, volatility and commodities strategies.

A key reason for optimism in the sector is 78 per cent of believe quantitative strategies should perform better in 2021 than they did in 2020. Some 68 per cent say they expect quant strategies to outperform this year, and 59 per cent believe many are becoming more attractive because they offer diversification benefits for portfolios.

With asset owners set to increase their allocation to quant strategies, the research found 86 per cent of those surveyed expect the number of quant fund managers to increase over the next five years, with 28 per cent predicting a dramatic rise. Three in four think increased transparency will lead to institutional investors increasing their allocation over the long term.

When questioned about what mattered most to them in trading infrastructure, 65 per cent said backtesting (providing consistent results between live trading and backtests by factoring in real-life trading costs and market structures) was “very important”. Just over half (52 per cent) said clean data was also very important to them. The ability to move seamlessly from research into production and execution (49 per cent) and getting trading strategies to market faster (47 per cent) were also cited as significant features.

New and innovative datasets were also found to have supported the growth in systematic strategies: 24 per cent of hedge fund managers questioned have dramatically increased their analysis of social media and chatroom data over the past 12 months. A further 48 per cent said it has increased, and only 12 per cent said they have focused on this set of market data less.

Over the next two years, 30 per cent say they will dramatically increase their use of chat room and social media data to support signal construction and wider investment decisions. A further one in three (35 per cent) believe their use of this data will rise slightly.

Over the next two years, more than 80 per cent of respondents expect an increase in the use of cryptocurrencies in quant strategies and portfolio management, including 36 per cent who foresee a dramatic increase and 45 per cent who predict a slight rise.

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