Quant-based PMS schemes struggle as almost all funds dip in last six months

Quant-based PMS schemes struggle as almost all funds dip in last six months

Quant-based PMS schemes seem to be having a tough time in the ongoing market volatility as almost all such schemes – 35 out of 36 - are in the red if the last six months performance is taken into account.

While the fall has been in the range of 2 to 21 percent, the benchmark S&P BSE 500 TRI index has declined 8.23 percent in the last six months. Around 20 PMS schemes have fallen more than the benchmark. Further, 11 schemes benchmarked to the Nifty 50 TRI have fallen more than the 5.31 percent decline of the index.

Interestingly, a quant-based scheme of Svobodha Infinity Investment Advisors is the only one in positive territory in the last six months with a modest gain of 1.6 percent.

Quant strategies are currently struggling as they are not designed to adapt to rapidly changing market cycles, says Kamal Manocha, Founder & CEO of PMS AIF WORLD. He added that while quant performs well in predictable markets, it struggles in shifting trends.

"Short downtrends (3–6 months) aren’t enough for quant to adjust, whereas longer trends (2–4 years) favour momentum strategies. For example, quant funds capitalised on the last bull run in manufacturing, infrastructure, and capex by identifying trends early," said Manocha.

In a similar context, Pramod Gubbi, co-founder of Marcellus Investment Managers says that not all quant funds struggle in a falling market as some strategies like low-volatility or quality-based strategies are designed to perform better in downturns.

Gubbi added that the more popular quant strategies fall under factor-based investing or smart beta, which typically focus on factors like value, quality, momentum, low volatility, and market capitalisation.

"Value has performed really well for three years but recently quality started playing well. Momentum strategies, which thrive in trending markets, tend to break when trends reverse—explaining their recent struggles after a strong three-year run," he said.

Incidentally, the performance of non-quant strategies hasn’t been much better either though they have fared better than the quant ones. Only 11 percent of the non-quant schemes have yielded positive returns during the last six months. Out of the 385 non-quant schemes, only 45 schemes have given positive returns.