Quant funds are back…at least for now.
After losing money in 2020, computer-driven hedge fund firms, including Two Sigma and Renaissance Technologies, have rebounded sharply this year.
This is especially true for a few strategies in particular. “Risk Premia and equity quants are having their best year in a while, and nobody is talking about it,” said Jonathan Caplis, chief executive officer of hedge fund consultant PivotalPath.
Through November, equity quants are up, on average, by 11.6 percent, after enjoying one of their best months ever, Caplis noted in a recent phone interview. They are now on pace to post their first profitable year, on average, since 2017. “If the year ended today, it would be the best year since 2013,” Caplis added.
Meanwhile, PivotalPath’s Risk Premia index was up 7.7 percent through November, after dropping 11.3 percent in 2020. It was up 8.1 percent in 2019 and down 9 percent in 2018.
Two of the world’s largest quant firms are posting much better results than the indices. Two Sigma Risk Premia Standard, for example, was up 11.4 percent through November, according to a person who has seen the results, and to a hedge fund database.
Two Sigma Risk Premia Enhanced, meanwhile, was up 18.19 percent through November, according to the sources. In 2020, the two funds were down 7.62 percent and 11.76 percent, respectively, while in 2019 they were down 0.69 percent and 2.25 percent, respectively, according to a hedge fund database.
When it invested $200 million in the Two Sigma Risk Premia Enhanced fund in 2016, the Pennsylvania Public School Employees’ Retirement System (PSERS) explained in a memo that the strategy focuses on “recognized, fundamental risks that have historically provided attractive risk-adjusted returns with low correlations to the markets and other absolute return strategies.”
“Two Sigma’s approach to Risk Premia is to build a diversified portfolio of long and short positions using a diverse set of longer-term fundamental and technical models from their common research platform,” PSERS added. “Fundamental models capture quantitative and qualitative information from publicly available data to assess value, quality, yield, and other measures. Technical models capture data such as price and volume to assess behavioral biases such as trend following.”
The Two Sigma Compass fund has also rebounded this year from a loss. The macro fund was up 8.75 percent through November, after losing 12.21 percent last year, according to a person who has seen the results.
Two Sigma Spectrum, an equity quant fund, is up about 3 percent for the year, after gaining 6.71 percent last year and 1.1 percent in 2019, according to the source.
Elsewhere, equity quant fund Two Sigma Absolute Return is down 0.36 percent through November, after losing 1.24 percent in 2020, according to the source.
Despite the recent rough years, Two Sigma’s assets remained stable. It currently manages $63 billion, up from $60 billion at the start of the year.
Renaissance Technologies’ three public funds have rebounded from much steeper losses last year. However, its funds have suffered sharp declines in assets. For example, Renaissance Institutional Equities Funds (RIEF) is up nearly 9 percent through November, after losing 19.4 percent last year. Its assets, however, have declined by 40 percent to nearly $21 billion over the past two years, according to a hedge fund database.
RIEF is a long-biased fund that mostly invests in U.S. and non-U.S. equities. It was designed to exceed the average yearly returns of the S&P 500 Index, with dividends reinvested in the long term.
The Renaissance Institutional Diversified Alpha (RIDA) Fund is up 5.7 percent for the year through November, after losing 31.6 percent in 2020. Its assets have shriveled by about two-thirds to slightly below $5 billion over the past two years, according to the database.
The quant fund has exposure to “a diversified universe of equity securities traded on U.S. exchanges, futures and forwards, utilizing longer-term alpha signals,” according to the database.
Renaissance Institutional Diversified Global Equities Fund (RIDGE), launched in April 2016, is up 2.34 percent through November. It was down 31.2 percent last year. As a result, its assets stand at about $6.4 billion, roughly half of the total from two years ago. The market-neutral, long/short equities fund invests in equity securities listed on global exchanges and derivatives (directly and indirectly through swaps), according to the database.
The Renaissance funds are also currently enjoying a strong December. Through the middle of the month, RIEF is up 13.7 percent, RIDA is up 11.3 percent, and RIDGE is up 7.4 percent, according to a person who has seen the results.
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