Tuesday, May 12, 2009

Rocket Scientists Crash

"With considerable fanfare, the mutual fund business has launched 223 quantitatively managed funds over the last three years. ... The results are in, and once again the fund companies did pretty well. Their investors--not particularly. ... The mutual fund business has never met an investment trend to which it wasn't willing to pander. In 2000, at the peak of the technology bubble, the industry rolled out 96 tech funds. Investors poured in their life savings, with disastrous results. ... At year-end 2007 the quant funds had $78 billion under management, delivering $725 million a year in fees to the vendors. ... Then 2008 rolled around. The quantitative models backfired. Like value managers, many quant funds hunt for stocks that appear underpriced on metrics like a company's current price/book ratio relative to its historic value. ... With their models telling them to drive off cliffs, many quant funds crashed last year. ... What's an investor to make of all this? 'On average quant funds seem to perform about average,' says Jeffrey Tjornehoj, research manager at Lipper", Matthew Craft at Forbes, 11 May 2009.

By the time a new product is offered to the public, its day is done.

2 comments:

Anonymous said...

It's like fashion IA... it starts at the exclusive high end and is profitable and chic (quant funds)...

Then the "Targets" of finance come along and make less expensive knockoffs... but the market has moved along and the fund managers just ride the fees as long as they can...

Cook Gola and Company, PLLC said...

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