Most quant funds failing to beat benchmarks as stocks log stellar performance this year
For active fund managers that have struggled to outperform the US stock market, a new report from Bank of America may provide a welcome shot of schadenfreude.
According to research released by the bank this month, most quantitative mutual funds are failing to beat benchmarks amid remarkable US stock performance.
As reported in Institutional Investor, the bank’s equity and quant strategists found that large-cap quant funds trailed the Russell 1000 index by an average of 3.2 percentage points this year through November. Only 11% of funds did better than the benchmark.
The S&P 500 is reportedly approaching its best performance since 2013, having gained 27.6% for the year through last month; the Russell 1000 Index, meanwhile, gained 27.7% over the same period.
Both benchmarks edged out large-cap quant funds and large-cap actively managed funds, which the report said saw returns of 24.5% and 26.3%, respectively.
The fortunes of quants and active funds diverged on the small-cap front. The average small-cap quant fund returned 20.2% in the first 11 months of the year, lagging the Russell 2000’s 22% gain. Meanwhile, the average small-cap active manager eked out a small victory with a 22.7% return over the same period.
The struggles for quant funds reflect the fact that markets were in the “trickiest part of the cycle,” as noted by Bank of America quant strategists in an October report. Calling a potential end to the winning streak of growth and quality factors, the strategists at the time said that investors should realign their portfolios toward value.
That view was reaffirmed in this month’s research report, in which Bank of America strategists said a 4.7% gain made value the best-performing factor group in November.
