Is the Quant Fund Rally Fading?
Solid choices remain even if their hot streak cools down.
Quantitative funds such as Bridgeway Small-Cap Growth (BRSGX) have been red-hot, but the good times may be over. Funds that employ quantitative stock-picking models do best in nice steady environments when company fundamentals work well at signaling where a stock is headed. That's why quant funds have looked great during the past three and five years, but have fallen back into the pack during the market's recent decline. A list of 66 quant funds compiled by Morningstar beat at least 60% of their respective Morningstar Category peers, on average, in each calendar year from 2011 through 2015. This hot streak follows a brutal stretch from 2007-10 when the stock market plunged sharply then quickly reversed course and spiked upward. In keeping with this trend, quant funds posted a very average category rank of 48 during the three months ended March 10, 2016, as stocks generally dropped.
Beyond their use of models, quant funds don't have much in common. Thus, they can be difficult to identify as there is no portfolio or return data point that indicates a fund uses quant models. Also, a fund isn't required to disclose in its prospectus that it does this, and the names of quant funds rarely tip off investors, either. Morningstar's list of quant funds is based on our manager research analysts' knowledge of money management firms, portfolio managers, and strategies.
Greg Carlson does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.
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