Are ‘quant funds’ to blame for volatility?

Among the many culprits being blamed for the current turbulence in the markets are the 'quant' funds which take their cue to buy or sell from computer programmes rather than people. Tim Bennett looks at what they mean for your investments.

Among the many culprits being blamed for recent market turmoil are the vast quant' funds that take their cue to buy or sell shares from computer programs, rather than from people. But what are they, asks Tim Bennett, and what impact do they have on your investments?

Quantitative funds can be traced back to the early 1970s when Wells Fargo introduced an entirely computer-run mutual fund that tracked 1,500 stocks on the New York Stock Exchange. The newer equivalents also rely on computer programs for their trading instructions, using software that is the product of many hours of research by some of the cleverest mathematical minds in Wall Street and Canary Wharf. But for all their geeky sophistication, their basic trading strategies often vary little from those of a conventional, human fund manager. Some, for example, are long-only quants' that use screening tools to select the best stocks for a portfolio. Others are market-neutral', buying some shares and shorting others in an attempt to beat the market.

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Tim graduated with a history degree from Cambridge University in 1989 and, after a year of travelling, joined the financial services firm Ernst and Young in 1990, qualifying as a chartered accountant in 1994.

He then moved into financial markets training, designing and running a variety of courses at graduate level and beyond for a range of organisations including the Securities and Investment Institute and UBS. He joined MoneyWeek in 2007.