The human stock pickers at hedge funds are leading the pack this year, while computer-run strategies pull up the rear. That’s no accident.
Traditional equity funds and quant vehicles tend to move in the opposite directions. The pattern is shown in results for the first nine months of 2017: the average equity fund was up 9.7 percent while quant pools rose only 0.6 percent, according to Hedge Fund Research.
The environment that lifts stock pickers — steady markets that enable their long-term trades — is not so friendly to quants. They do best in periods of volatility and dispersion, when their algorithms can find small price disparities to exploit. But the U.S. stock market has been unusually tranquil since last year’s presidential race. At an average level of 11.6 since Election Day, the CBOE Volatility Index has hovered about 40 percent below its lifetime average.