Hedge funds that deploy a basket of computer algorithms for trading are gaining popularity in China after many investors got burned by human stock pickers.
Firms including Shanghai Black Wing Asset Management Co. and Shanghai Minghong Investment Management Co. are among those ramping up multi-strategy quant offerings to tap growing investor demand.
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A key sector underpinning quants’ out-performance has been equities, where managers generated a 10% return in six months to May 12, beating active funds’ 7.4% advance, according to Shenzhen PaiPaiWang Investment & Management Co. data of 110 stock-focused hedge funds managing at least 5 billion yuan ($700 million).
“Discussions about star managers have faded” over the past two years, Howbuy said in an April 27 report. “Investors are starting to develop a belief in quants while becoming skeptical toward active management.”
The disappointing performance of some of the best human-run hedge funds is adding to the notion that machines are better at navigating China’s often capricious markets. Quant funds are locked in an arms race to develop products based on multiple strategies, betting on investor interest as the market matures in the fashion of Western peers, where these strategies are becoming more accessible for pension funds and wealthy clients.
In China, local investors are looking for an edge after domestic stocks slumped, while uncertainty over the economy pushes more people to shift cash into overseas assets. China’s main equity gauge has gained just 1.5% this year, badly trailing most global indexes, after slumping 22% last year.
The out-performance of quants since last year has “put multi-strategy in the spotlight,” said Yi Weidong, general manager of custody at China Merchants Securities Co., the largest custodian for hedge funds. “Multi-strategy will become the next battlefield for fund managers.”
The automated trades are often based on a combination of quant strategies ranging from long only, which bets on stock gains, enhanced index bets, commodities, credit, and market neutral wagers.
Read the full article here by Bloomberg News, Advisor Perspectives.
