Quant hedge funds start digging out of their hole

FILE - In this Aug. 12, 2019, photo specialist Peter Mazza works at his post on the floor of the New York Stock Exchange. Stocks of companies that do lots of business with China are obvious targets to sell when trade worries rise, and they’ve lagged sharply behind the rest of the market whenever President Donald Trump sends out a tariff tweet. But investors are also looking way beyond these first-order effects, as they pick out which stocks look most vulnerable to the trade war. (AP Photo/Richard Drew, File) — FILE – In this Aug. 12, 2019, photo specialist Peter Mazza works at his post on the floor of the New York Stock Exchange. Stocks of companies that do lots of business with China are obvious targets to sell when trade worries rise, and they’ve lagged sharply behind the rest of the market whenever President Donald Trump sends out a tariff tweet. But investors are also looking way beyond these first-order effects, as they pick out which stocks look most vulnerable to the trade war. (AP Photo/Richard Drew, File)

Associated Press

Quant hedge funds might have finally seen the light at the end of the tunnel.

After weeks of minor losses that one fund executive described as a “long, slow bleed,” systematic funds ended July with a strong week, according to a note sent by Morgan Stanley to clients after trading last Thursday.

The note stated that July’s final week clawed back roughly 30% of quant losses for the month, “softening the blow for what’s otherwise been a strong year.” A note from Goldman Sachs’ prime brokerage unit said stock-picking quants ended July down 2%, bringing the average fund’s annual return to less than 10%.

This figure still bests the average hedge fund and the S&P 500 over the same timeframe, but the summer slowdown put the brakes on what had been shaping up to be a great year.

At London-based Qube Research & Technologies, the fast-growing quant firm fell 4.5% in its flagship fund in July, a person close to the firm told Business Insider, clawing back some losses in the last week of July. The fund is still up more than 13% for the year.

Engineers Gate, the $4 billion manager, ended May up 12%, but lost more than 4% in July, a person close to the firm said. Its 2025 returns now sit at 7.1% through July after a strong close to the month.

Man Group’s multistrategy quant strategy, AHL Dimension, lost more than 3% in July, the firm’s website shows. The strategy is down close to 9% on the year. Walleye’s quant group was the worst performer of the firm’s four strategies in July, the firm told investors in a recent update, but was still positive thanks to Asian strategies offsetting losses in the US.

The managers declined to comment.

Since the start of June, a combination of factors, including a momentum sell-off and crowded trades, have stung quant managers. Still, many in the industry were anticipating a significant bounce-back once things reverted.

“We think strong hands should be levering up into this headwind,” a mid-July note from former Bridgewater investment committee member and Dark Forest Technologies founder Jacob Kline read.

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