Quant managers, who account for 82% of 130/30 assets as of March 31, saw demand for their strategies slacken following market turmoil last August that slammed the returns of many types of quantitative strategies. Forty-two quant managers ran $55 billion in quantitative strategies, an increase of 13% from the earlier period.
In contrast, 11 fundamental managers — who ran a combined $12 billion — reported a 92% increase in 130/30 assets from the previous six months. The complete ranking can be found at http://www.pionline.com.
The stock markets worked against both types of managers. The Standard & Poor's 500 index was down 15% during the six months ended March 31.
Quantitative strategies, though, use models that rely on historical data, and many underperformed during last year's unusual market environment. Also, most quant strategies, including active extension ones, have a value tilt at a time that value has fallen out of favor.
There's “no question” that being a fundamental manager at a time when many quant managers were hurt was a benefit, said Scott Bondurant, managing director and head of long/short equity strategies at UBS Global Asset Management, Chicago, a fundamental manager.
UBS managed $2.5 billion in 130/30 strategies as of Dec. 31, the most recent data available, vs. $2.7 billion three months prior.
Strong performance, coupled with a four-year track record, helped spur growth at JPMorgan Asset Management, said Paul Quinsee, chief investment officer of core U.S. equity. Growth came from “a few” large mandates and from existing clients, he said.
Very few 130/30 managers have a track record exceeding three years.
During last summer's subprime meltdown, JPMorgan's 130/30 strategy was underweight financial stocks and managed to invest in strong performing large-cap stocks, he said.
The other managers in the top five 130/30 are quantitative firms: State Street Global Advisors, Boston, with $12.4 billion (as of Dec. 31, 2007); BGI, $9.3 billion; Jacobs Levy Equity Management, Florham Park, N.J., $4.9 billion; and Analytic Investors LLC, Los Angeles, $4 billion.
For years, when value was in favor, quants had outperformed fundamental managers. But quant managers and fundamental managers are now on an even playing field, said Arup Datta, managing director at Numeric Investors LLC, Cambridge, Mass.
Mr. Datta, though, sees quant managers eventually gaining an edge. “Valuation spreads are close to where they were in the late '90s,” he said. “Leaning toward value will bring quant managers back.” Numeric runs both value and growth quant strategies. The firm had $2.2 billion in 130/30 strategies as of March 31, up 16% from six months earlier.
Managers and other market watchers are not surprised that growth slowed during the period.
What was surprising, said Edward Goldfarb, also a managing director at Numeric, was the earlier growth rates.
“In effect, all the early adopters have already moved in,” he said, and now assets are growing at a more reasonable rate.
In early January, a report by Merrill Lynch & Co., New York, estimated that worldwide assets in 130/30 could reach $1 trillion by 2011, with half of that coming from U.S. investors.
Industry watchers aren't convinced anymore.
“I'm not sure that it's realistic,” UBS' Mr. Bondurant said of the projected figure.
Because of capacity constraints, “some of the larger (estimates) should be treated with some caution,” said JPMorgan's Mr. Quinsee.
But across the board, all managers and industry experts agreed interest in 130/30 will not fade away as long as investors are looking for additional returns with relatively low risk.
There is a possibility the strategy will again see a stronger growth rate, said Michael Han, executive director and head of the asset owner group and client development within Morgan Stanley's prime brokerage unit in New York. “Because it's working off of such a low base, it is possible to see an increase to double-digit or even triple-digit growth rates,” he said.