130/30 Quant vs. Fundamental: Quants have a bigger spice cabinet
Nov 11th, 2007 | Filed under: 130/30
On Friday, we reported on the debate about which type of manager was better qualified to execute a 130/30 strategy, a quantitative manager or a manager using fundamental research.
For more on this topic, we refer you to HedgeWorld’s Emma Trincal, who was covering the same event. Trincal has written an encyclopedia worth of material on the hedge fund industry and has seen it all. In this article, she does a great job of laying out the arguments made by participants in Terrapinn’s “Portable Alpha & 130/30″ conference last week.
We tend to agree with those who say quants own the lead in the space because their massive stock ranking systems gave them a head start. Ergo, the story goes, fundamental managers will gradually claw their way back.
However, there is one slightly more nuanced argument that we’d like to make in quants’ favour before we leave this topic.
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Then rack up another advantage to being a quant: we have these clever “optimizers” that allow us to match not just beta, but sectors, styles and just about any other factor, so we only take significant bets where we want.
Not that we always try to be exactly beta 1.0; beta has been a pretty good bet, and the attitude is that high total return is the big issue, not modest, low-risk alpha above some 0.6 beta. Different managers have different strategies, which don’t always work. But they can get what they want, with not too much work.
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