A new breed of investor has taken over Wall Street and we are now entering the age of the ‘quantamentals’, according to SYZ Asset Management's head of fund selection.
Speaking to Citywire Switzerland's sister publication, Citywire Selector, Cedric Vuignier, who heads up the Alt Ucits and fund selection arm at the Swiss group, said ‘big data’ is an increasingly common term in manager meetings.
‘This is especially true in the US and these terms weren’t in hedge fund managers’ mouths a few years ago, with the exception of the quantitative firms,' he said.
'Today, a lot of the information asymmetry that existed in the past is gone because of a wider access to information across the world.
‘Subsequently, hedge fund managers need to find another way to articulate a differentiated view from the consensus on the price of an asset, or the earnings of a company.’
Vuignier said it is no surprise that hedge funds are now spending large amounts of money on harnessing big data and hiring data scientists to make sense of it all.
‘New ‘quantamental’ traders have taken over. They combine classic trading skills of fundamental investors with the use of powerful computing and big data sets to confirm their views.
'The open question is: will they find gold in this mountain of information? Only time will tell.’
The new norm
It’s this influx of new talent which Vuignier said has led to massive investments in passive and quantitative products, such as CTAs, statistical arbitrage and smart beta strategies.
‘While hedge fund managers were able to extend their positive run since Q4 2016, the lack of volatility remained an overhang on performance and it remains the last hurdle for active managers to fully take advantage of their opportunity set.
‘The changing game could be normalisation which should bring more volatility. While we are keeping an equity allocation with a net long bias for now, we have started balancing our portfolios with arbitrage strategies with more convexity to take advantage of an expected increase in volatility.’
Vuignier said this has been the main driver of sharper equity sector rotations and also highlighted increased allocation to merger arbitrage in the firm's Oyster Multi-Strategy Ucits fund.
‘President Trump’s election pledges are likely to favour a sustained level of corporate activity, including less regulation, taxes and repatriation of large amounts of cash held abroad by corporations. This has been the first motivation for these managers.
‘Furthermore, the reduction of uncertainty in Europe, following Macron’s victory, has ushered in fresh confidence in company boards worldwide to be active,’ he added.