As investors seek investment strategies that can deliver consistent returns across market cycles, quantitative investing is gaining traction in India. Quantitative or “quant” funds utilize rules-based algorithms and data models to make objective investment decisions.
According to a recent study by Prabhudas Lilladher, quant schemes have significantly outperformed active funds over the past five years. All quant funds beat their benchmarks in this period, compared to less than half of active funds. Their ability to systematically manage risk through disciplined processes makes quant funds resilient in fluctuating markets.
The study also found that quant funds have lower correlations to traditional equity strategies and indexes. This means they can provide diversification to investor portfolios. Their outcomes are repeatable since decisions are based on quantifiable factors rather than subjective calls. And with minimal reliance on individual fund managers, quant funds face less key-man risk.
These advantages point to quant funds capturing a major share of India’s growing $275 billion mutual fund industry. Yet they still only hold about 1.5% of assets currently. This indicates vast room for expansion, as quant strategies now manage over 35% of assets in more developed markets like the US.
As Indian investors recognize the benefits of data-driven investing, quant funds are poised for significant growth. Their strong track record, risk management capabilities, and reduced behavioral biases make them well-suited for the country’s maturing mutual fund space. With their demonstrated ability to generate alpha across market cycles, quant funds may reshape how Indians manage their investment portfolios in the future.
