Are quantitative mutual funds a good way to diversify a portfolio in times of market volatility? | Jobs Vox


Quantitative mutual funds, commonly known as quant funds, are investment vehicles that acquire and trade stocks using computer algorithms and other quantitative techniques. As these funds can be a steady source of income, they can be considered as a smart approach to portfolio diversification during market turbulence.

“Quantitative mutual funds are often used to diversify portfolios because they can expose investors to a variety of assets and industries, and can provide returns not associated with more traditional asset classes like stocks and bonds,” said founder Ram Kalyan Meduri. and CEO Jama Wealth

How quantitative funds benefit your portfolio in changing times

According to Sonam Srivastava, Founder, Wright Research, SEBI Registered Investment Advisor, quantitative funds can benefit a portfolio in a number of ways during volatile periods:

A systematic approach

Quant funds use algorithms and data-driven strategies to make investment decisions, reducing the influence of human emotion on investment decisions and providing a more systematic approach to risk management.


Quant funds often use a variety of investment instruments and strategies, helping to diversify portfolios and reduce overall risk.

Low connection

Quant funds may have low correlations with other asset classes, meaning they may not move in the same direction as the overall market. This provides an additional layer of protection during market volatility.

Tactical nature

Quant funds can subtly change allocation based on market direction. While they may have bets on growth stocks in a bull run, when the market turns, they can shift budgets to defensive stocks or value plays, thereby staying on the sidelines.

Able to perform for profit

Quant funds can outperform traditional investment strategies in times of market stress or uncertainty, primarily because of their commitment to reducing portfolio risk and maximizing performance based on expected returns.

Vivek Sharma, director (strategy) and head of investments at Gulak, part of Este Group, said neither quantitative funds nor demand-driven losses can protect against market volatility. But research shows that the correlation between quantity and demand is low. So that tells us that investors would benefit from having both types of funds in their portfolios.

“The problem is not with quantitative or discretionary investment style, but with focusing on strategy. Many quant funds are founded for one reason only, which is mostly momentum, and investors will be disappointed with how Fundmen’s 2022 Quant Fund performed. ” said Vivek Sharma

The best way to diversify, he added, is to choose portfolios that are not single-issue but multifaceted in nature.

Risks associated with quant funds

According to Ram Kalyan Meduri, founder and CEO, Jama Wealth, a SEBI registered investment advisor, there are risks associated with quantitative funds.

Market risk

Like all investments, quant funds are subject to market fluctuations and may lose value due to changes in market conditions.

Liquidity risk

Some mutual funds may invest in highly illiquid securities, meaning they may be difficult to sell or may sell at a discount during times of market stress.

Model risk

Quantitative funds rely on mathematical models to identify and trade securities, and these models may be flawed or may not perform as intended in certain market conditions.

Data risk

Quantitative funds rely on a large amount of information to make investment decisions, and the information may be incorrect or incomplete, which may lead to poor investment decisions.

Risk of human error

Despite the use of algorithms and other quantitative methods, quant funds are still vulnerable to human error, such as errors in data input or model development.

Systematic risk

Quant funds may be vulnerable to general market risks such as economic downturns or geopolitical events.

Quantitative funds can help diversify a portfolio and possibly reduce risk, but should be used as part of an overall investment plan that takes into account the investor’s risk tolerance and financial objectives.

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