Member LoginDividend CushionValue Trap
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You Saw It Coming: 85% of Quant Funds Underperform
publication date: Jan 21, 2020
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author/source: Brian Nelson, CFA
You Saw It Coming: 85% of Quant Funds Underperform
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Financial advisors that shared the book Value Trap with your clients, if you think it makes sense, please be sure to let them know how hard you are working for them in staying up to date with new developments, especially the vast underperformance of quant mutual funds. Keep building trust.
--- By Brian Nelson, CFA
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If I could have one wish come true, it's for our members to know how much we put their interests first in getting them the right information with sound judgment. This sometimes takes us off in tangents, but where the individual investor and financial advisor are in need or not getting a fair shake, you're going to find us helping.
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If you recall, through most of 2017-2018, I had been commenting on the hazards of the research and thought processes of the quantitative community, and in late 2018/early 2019, our firm published Value Trap. I hope someday the book reshapes all of finance, but thus far, I think it has served investors well.
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The book, which is a reformation on the field of quantitative research, shows the many, many areas where quants are just getting it wrong. You may have been wondering, "Why is Valuentum spending so much time on this?" Well, it's because we saw what was happening in quant-land, and we wanted you to be aware of it, again to get you ahead of trends.
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Well, it's been a few years now since we turned bearish on the quantitative community, but how have their funds fared? Well, you may not believe how bad: Roughly 85% of US quant mutual funds underperformed the market during 2019. This follows more than 80% underperforming the market during 2018. It's ugly and many are calling it a "quant winter." The truth, however, is that much of what they are doing makes little sense.
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If there is one thing that I hope that you can see is how hard we work for investors, even if it means we must go against popular trends (and quant investing hasn't ever been this popular). Nobody has been more vocal on the troubles of quant analysis than Valuentum, and we hope Value Trap helped you ask some serious questions about quant investing, and perhaps helped you avoid some of these terribly underperforming funds, too.
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On December 27, Value Trap was named the best indie book in the non-fiction category of Business by BIBA. This follows being named an award winner for the 2019 International Readers' Favorite Book Awards for the category of non-fiction and a Finalist in the category of Business at the Next-Generation Indie Book Awards.
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We still need your help, however. We'd love to get 40+ reviews on Amazon, and if you've read the book, it'd be great to share your thoughts on it. Please do so here. We're at 28 reviews at the moment, so we're already more than half-way there. I appreciate it very much. I'm counting on you to help us continue to help investors everywhere!
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Financial advisors that shared the book Value Trap with your clients, if you think it makes sense, please be sure to let them know how hard you are working for them in staying up to date with new developments, especially the vast underperformance of quant mutual funds.
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You can find a good bar chart on the recent underperformance of quant mutual funds here. The author of the piece doesn't quite get the story behind why quant is underperforming (I've reached out to him), but the bar chart is still good in showing how bad performance can get with spurious quant strategies (and most all of them are spurious!).
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In case you missed it, we made some big newsletter portfolio changes recently here, and we're anxiously waiting for upcoming reports at Johnson & Johnson (JNJ) and Microsoft (MSFT); our most recent thoughts on both names can found here. As always, thank you so much for your interest and support! You are helping us make a big difference out there.
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Tickerized for the largest quant-based ETFs. ----- Valuentum members have access to our 16-page stock reports, Valuentum Buying Index ratings, Dividend Cushion ratios, fair value estimates and ranges, dividend reports and more. Not a member? Subscribe today. The first 14 days are free. Brian Nelson does not own shares in any of the securities mentioned above. Some of the other companies written about in this article may be included in Valuentum's simulated newsletter portfolios. Contact Valuentum for more information about its editorial policies. |
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