Fund teams put faith in quantitative investing
By Deborah Brewster in New York
Updated: 12:40 a.m. ET Aug 14, 2006
Barclays Global Investors, the fund management unit of Barclays, is one of several groups â including Goldman Sachs and Bridgewater Associates â benefiting from the rapid growth in quantitative investing.
This style of money management has recently been growing at more than 20 per cent a year, twice the pace of the rest of the industry.
The world's biggest money manager is BGI, which edged past Fidelity and Capital Group with an entirely quantitative investing method, which uses computer models rather than people to make trading decisions.
Estimates vary as to how much quantitative money is managed actively â when computer models pick individual stocks instead of indices.
BGI has $1,600bn of quantitatively managed funds, of which about $340bn is managed actively, about a fifth of its total. Goldman has more than doubled its quantitative money in the past three years to $100bn, all actively managed.
Three of the 10 biggest hedge funds in the world are purely quantitative.
The trend, which has given rise to nervous jokes about computers taking over, contrasts with the investing style prevalent in the 1990s, which was based on individuals making decisions.
A computer model is able simultaneously to take into account thousands of correlations in assessing a company's share price, whereas a human is able to consider only a few.
Bob Jones, who heads Goldman Sachs' quantitative division, says: "[Quantitative] strategies have simply delivered better and more consistent performance."
Critics say quantitative investing is risk-averse and favours companies with characteristics that are easily measured by computer models, such as cash flow.
"How can a computer model predict the next Steve Jobs?" asks one traditional growth manager.
Critics also say quantitative investing has a bias to value investing, which happens to have done well in the past few years.
http://msnbc.msn.com/id/14334472/
By Deborah Brewster in New York
Updated: 12:40 a.m. ET Aug 14, 2006
Barclays Global Investors, the fund management unit of Barclays, is one of several groups â including Goldman Sachs and Bridgewater Associates â benefiting from the rapid growth in quantitative investing.
This style of money management has recently been growing at more than 20 per cent a year, twice the pace of the rest of the industry.
The world's biggest money manager is BGI, which edged past Fidelity and Capital Group with an entirely quantitative investing method, which uses computer models rather than people to make trading decisions.
Estimates vary as to how much quantitative money is managed actively â when computer models pick individual stocks instead of indices.
BGI has $1,600bn of quantitatively managed funds, of which about $340bn is managed actively, about a fifth of its total. Goldman has more than doubled its quantitative money in the past three years to $100bn, all actively managed.
Three of the 10 biggest hedge funds in the world are purely quantitative.
The trend, which has given rise to nervous jokes about computers taking over, contrasts with the investing style prevalent in the 1990s, which was based on individuals making decisions.
A computer model is able simultaneously to take into account thousands of correlations in assessing a company's share price, whereas a human is able to consider only a few.
Bob Jones, who heads Goldman Sachs' quantitative division, says: "[Quantitative] strategies have simply delivered better and more consistent performance."
Critics say quantitative investing is risk-averse and favours companies with characteristics that are easily measured by computer models, such as cash flow.
"How can a computer model predict the next Steve Jobs?" asks one traditional growth manager.
Critics also say quantitative investing has a bias to value investing, which happens to have done well in the past few years.
http://msnbc.msn.com/id/14334472/
