Over the past year, quant funds, which use mathematical and statistical data to make investment decisions, have been buying stocks faster than ever before. Experts have determined that hedge funds that are driven by algorithms are more accurate than human analysts at detecting trends.
This increase in algorithm driven purchasing has helped the US stock market to rally despite pessimistic prognostications. Charlie McElligott, equity derivatives strategist at Nomura, explains, “These funds move fast and unemotionally. They’re not parsing through earnings or taking a view on the stickiness of inflation . . . this is about price trends and momentum.”
Representatives of Deutsche Bank have noticed that stock market exposure among active managers is at a low, but overall equities across systematic funds is on the rise, partially due to the rise in quant funds. In spite of their positive influence on the market, quant funds still make up less than 10% of the hedge fund industry. Even so, they seem to have an oversized impact on the overall market. Deutsche Bank strategist Parag Thatte said, “We do see their trading has a big impact on equities, they don’t tend to lead the market . . . [but] they tend to amplify moves that are already happening.”