Fast-Money Quants Face Turbulent Year Amid Market Volatility
Quant funds that thrived early in the year saw their gains evaporate due to unexpected market swings across various asset classes.
Quant Funds, Market Volatility, Commodities, Equities, Treasuries, Japan, US
New York: So, it turns out that those quant funds, which were riding high on market momentum, hit a rough patch in 2024. They started the year strong, but then things got wild. We’re talking about everything from Japanese stocks to cocoa futures taking a nosedive.
At first, it looked like they were on track for a fantastic year, the best since 2008, thanks to some solid rallies in stocks and commodities. But then, bam! The markets turned chaotic, and those gains just vanished. An index from Societe Generale showed a mere 2% rise for the year.
These trend-following funds come in all shapes and sizes, but most of them ended up either losing money or barely breaking even in the second half of the year. For instance, the Virtus AlphaSimplex Managed Futures Strategy Fund was up 12% in May but ended the year down 3%. Ouch!
Even the big winners from earlier in the year saw their profits shrink. Mulvaney Capital Management, which was riding high with a nearly 150% return in May, ended up with just 83% by year’s end. Talk about a rollercoaster!
Experts say that trend-following works best when there are clear and consistent trends in the market. But last year was all over the place, with markets reacting unpredictably to monetary policy changes. It was a tough environment for these funds.
With geopolitical tensions, uncertainty around the US elections, and shifting economic conditions, it was a recipe for disaster. The second and third quarters were particularly rough, with fixed-income and currency markets causing headaches.
Despite the disappointing results, some see a silver lining. These quant funds can still provide diversification for institutional investors looking for returns that don’t move in lockstep with the broader market. After all, they had a stellar year in 2022 when the S&P 500 dropped significantly.
Looking ahead, some experts believe that if equities take a hit, these funds could bounce back. They’ve historically performed well during market downturns, so there’s hope for a turnaround.
Interestingly, while the total assets in managed futures have remained steady over the past decade, there’s a push to make these strategies more accessible to everyday investors. BlackRock and others are working on exchange-traded funds to bring these strategies to the masses.
One ETF, the Simplify Managed Futures Strategy, even tripled its assets last year and outperformed many benchmarks. The key? They kept their duration low and avoided equity exposure to reduce risk.
Looking forward, some analysts are optimistic about 2025, citing potential catalysts like high equity valuations and ongoing bond market volatility. It could be a good year for trend-following strategies!