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Fund Spy

Quant Funds Mount a Modest Comeback

But they're not out of the woods yet.

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Funds that use quantitative stock-picking models have suffered more than the typical equity fund since the 2007 credit crisis kicked off an extended period of turbulence. When we last looked at this phenomenon in the summer of 2010, three fourths of a group of 60-plus quant funds that we assembled had lagged their typical category peers for the three years ended July 28, 2010, as they struggled with stocks' sharp reversals. They lagged two thirds of their category peers in 2007 on average, 56% in 2008, and 60% in 2009's rally. In response, investors had pulled billions from these funds.

Fast-forward 17 months, and the picture is a bit brighter. The group of quant funds wound up edging out their peers in 2010. And in 2011, their average category ranking was 31 (in other words, they beat just over two thirds of their peers): This was the funds' best relative showing since 2005, when stocks were in the middle of a rally.

Greg Carlson does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.