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In a video interview, Karthik Kumar, Portfolio Managers, Quant Strategies, Axis AMC takes us through quant investing and its benefits. Let us look at some key highlights of the video:
Quant investing is a data intensive approach to investing, which uses mathematical formula to find opportunities across a broad range of stocks. It involves a combination of both – fundamental and quantitative.
While fundamental managers typically look at a very concentrated set of stocks but in much more depth, quant investing is well defined and transparent in terms of parameters of selection of a stock. Quant investing is popularly known as rule-based investing.
Two major components of quantitative investing - Stock selection and portfolio construction. The stock selection process involves a mathematical and statistical model that is composed of inputs ranging from price data, volume data and fundamentals. The other component is portfolio construction in which we combine stock selection with the risk involved in an individual stock.
Benefits of quant investing
- Potential to cover large number of sectors and stocks, which is humanly not possible
- Eliminates behavioral biases
- Adds diversity to client portfolio through exposure to large number of stocks
Risk associated with quant investing
- The model has to be monitored and evaluated constantly
- Since stock selection is largely through a model, risk should be managed at portfolio construction level
To view the complete video interview, click here.
