S&P questions transparency of quant strategies
The latest Standard & Poor’s (S&P) peer group review into quantitative Australian equities managers has brought the transparency of some managers into question.
“While S&P has not lost conviction in quantitative investment processes, managers are becoming less transparent when it comes to discussing the investment signals that they incorporate into their models,” S&P fund analyst Justine Gorman said.
Quantitative modelling relies heavily on the manager’s ability to generate new ideas and modelling techniques, however in an increasingly competitive environment, it can be difficult to use signals that no other manager knows about.
The result of multiple managers using the same signals is that alpha opportunities start to fade.
“As more and more quant and hedge-fund managers use similar signals, the alpha opportunities can be disposed of using arbitrage,” Gorman said.
“Some managers are now using algorithmic trading not only to improve the efficiency of trades, but also to maintain the order anonymity.”
Gorman added that most quant managers now use a range of investment opportunities to deliver a number of small portions of alpha.
The review, which covers six strategies from five managers, resulted in two unchanged ratings, three downgrades, and one new rating, with Acadian, BGI, Goldman Sachs JBWere, and MIR all receiving four stars.
Recommended for you
As the year draws to a close, a new report has explored the key trends and areas of focus for financial advisers over the last 12 months.
Assured Support explores five tips to help financial advisers embed compliance into the heart of their business, with 2025 set to see further regulatory change.
David Sipina has been sentenced to three years under an intensive correction order for his role in the unlicensed Courtenay House financial services.
As AFSLs endeavour to meet their breach reporting obligations, a legal expert has emphasised why robust documentation will prove fruitful, particularly in the face of potential regulatory investigations.
