DARIEN, Conn. — Quantitative managers have bested other managers for the past three years in the most efficient of markets — U.S. large-cap equities — and been twice as successful at gathering assets, according to research by Casey, Quirk & Associates, Darien.
In a report titled "The Geeks Shall Inherit the Earth?" the consultant to money managers noted the 70 quant products in its universe have outperformed 688 "other active U.S. large-cap equity products by (an annualized) 103 basis points over the three years through 2004."
That outperformance has continued into 2005, said Daniel Celeghin, the report's author, and a senior associate at Casey Quirk, in a telephone interview.
The study looked at actively managed strategies rather than enhanced index products that offer lower tracking error. Only "pure" quant managers, as opposed to managers who use quant screens or overlays as part of a fundamental stock-picking process, were included in the pool.
The 32 quant managers in Casey, Quirk's universe have posted strong gains across the board, but three have done particularly well in the asset-gathering sweepstakes, Mr. Celeghin noted. San Francisco-based Barclays Global Investors, especially strong in large-cap core equities; Chicago-based LSV Asset Management, which follows a deep-value style; and Palm Beach Gardens, Fla.-based INTECH, which mostly falls in the growth category, commanded 46% of the quantitatively managed active U.S. large-cap equities at the end of 2004.
Between the start of 2003 and June 2005, since absolute outperformance became striking, INTECH's large-cap quant strategy has enjoyed net inflows of $10.2 billion, followed by $7.8 billion for BGI and $7.2 billion for LSV, said Mr. Celeghin.
While the study didn't focus on the reasons for the success of BGI, LSV and INTECH, Mr. Celeghin said first-rate distribution efforts were the likeliest factor. In a telephone interview, Christopher J. LaCroix, LSV's head of sales and client service, said his firm has worked hard to make what could have been a "black box" into a "Plexiglas box," where clients can feel comfortable with the process.
Overall, the median three-year tracking error for the study's managers was 2.7%, compared with 4.5% for 387 non-quant managers. Quant managers had delivered superior risk-adjusted returns even before 2003, but beginning that year they began, as a group, posting better absolute returns as well: The median quant strategy returned an annualized 5.6%, compared with the 4.5% median for "other" portfolios for the three years through 2004.