The word “quant” is an abbreviation for “quantitative”. Quantitative analysis as it applies to finance and specifically investments / trading is the application of mathematics to determine repeatable patterns that are statistically valid to create reliable, consistent and predictable returns. 

People who immerse themselves in this endeavor are known or have been referred to as “quants”. 

Quant trading / investing is also known by other names, such as “algorithmic” trading or “systematic” trading. 

The idea is that when one has identified a pattern that appears to be repeatable, a computerized model or “algorithm” can be developed to detect the pattern and to automatically initiate and close the trade. This provides a “systematic” approach to trading / investing. 

It removes the human element from the process. The problem with a human being making trading decisions is that it is subjective, inconsistent, unreliable and therefore not easily repeatable. 

Quant trading provides investors returns that are superior to traditional equity-based funds in much less risky manner. 

Quant trading is significant because the architect of such systems has some degree of control over the outcome of an investment. 

Quant systems can therefore be designed to achieve specific objectives. For example, to achieve a specific annual return with a specific maximum draw down, and for the actual result to have a high probability of being within X% of the specific design goal. 

This element of control is the major differentiator between quant systems/ funds and traditional equity-based funds. 

The managers of traditional investment funds are known as “stock pickers”. Their job is to identify a portfolio of shares they believe will provide excellent returns in the future. However, these “stock pickers” cannot control what is referred to as “Systematic” risk or “Market” risk. That is the risk when the entire market falls due to some shock such as a War, the GFC, the Pandemic, Fiscal and Monetary Policies of Nations, etc. So, despite having invested in good quality shares (companies), the value of a traditional fund can still fall by 25% to 30% as the result of any shock at any time. Effectively the managers of these funds have no control over the value of their funds. And when such events occur, investors will be told “It is a long-term investment, be patient”. 

Quant trading seeks to “fix up” this problem that most traditional equity-based funds have by designing trading systems that are controllable. Instead of “gambling” or “betting” on a single share or portfolio of shares and wishing for the best, quant traders search for short term anomalies in the price patterns of trading instruments that are repeatable and every time similar conditions occur, the system will automatically execute the trade. This happens on a 24 X 5 basis. 

The result is a large number of trades that have a high probability of success providing returns that are superior to traditional funds that are reliable, consistent and predictable. 

Furthermore, any “downside” in the value of a quant system can be limited by simple programming. 

For all of these reasons, it is useful for any investment portfolio to have at least a portion of the portfolio (10% to 15%) invested in a quant type fund so that the investment manager can compare the value of a quant fund with other investments over a period of time. 

A summary of the differences between quant funds and traditional equity-based funds is provided below:

Traditional Equity-Based Funds

• Returns average 8% pa and are long term only.
• Returns are highly volatile 
• Sharpe ratio ranges between 0.4 and 1.2
• Exposed to market risk
• Funds are not liquid: Funds can be “locked in” for 5 years + (unless the investor is prepared to accept a loss)
• Markets are open approximately 6 hours per day
• Fund managers “take a punt” on companies they believe will do well over the next few years – and are largely dependent and whims of the market. If the value of a share goes negative, the fund is “locked-in” to that share until it goes positive again, unless the share is sold at a loss. 
• Many funds have a “buy and hold” mentality because they have done extensive research on the companies selected and know they will perform well in the long term. However, in times of market shocks, markets can fall very quickly, and it means that most equity-based funds remain locked into these companies when the market falls. Investors can therefore wait for several years before their investment recovers to its original value. 

Quant Funds

• Returns exceed 20% pa and are both short term and long term. 
• Returns are reliable, consistent and to some extent, predictable.
• Sharpe ratio exceeds 2.5
• Protected from market risk (Not correlated to the market)
• Funds are highly liquid: Funds are “positive” in the short term and available at any time. 
• Markets are open 24 hours a day 5 days a week.
• Fund managers execute a high volume of trades that have a high probability of success every day. This pattern is repeated consistently every day of the year. Trades are very short term in nature and are very small so no individual trade can affect the fund. This reduces the risk of the system significantly.
• “Stop losses” are programmed into the algorithms to ensure that any individual trade that begins to become too negative is closed automatically – and does not affect the overall value of the fund significantly.
• The one benefit of quant systems is that they can be extensively back-tested over periods of high volatility and market shocks. This gives architects a very good idea of how the system will perform during such events.
• The main benefit of quant systems is that they introduce a degree of predictability into investments as the architect of such systems can predict (within a range) what the performance of a system is likely to be. 
• A further benefit of quant systems is that the returns are achieved in such a manner that the returns are fairly reliable and consistent from month to month. 

One of the pioneers of Quant trading was the Medallion Fund by Renaissance Technologies. This has been documented in a book by Gregory Zuckerman that was published in 2019 entitled “The man who solved the markets”. 

Over a period of 30 years the fund was consistently profitable and achieved gross returns in excess of 66% per annum. 

Quant trading is therefore not new. 

For more information on this book, click HERE.

Quant / algorithmic / systematic type funds come in all shapes and sizes, each with differing goals and / or objectives. Just as with traditional funds, there are quant funds that range in quality from being very average to those that outperform the market significantly. 

There are many funds that claim to be quant / algorithmic / systematic funds that are not. There are many funds and or systems on the market that are effectively “black boxes”. These are systems that might work for a short period but ultimately fail. 

The Quant Fund has been designed to function for the long term – in perpetuity. This is done by establishing a fund management team with a research and development department whose objective it is to continuously develop new algorithms. By being able to upgrade the system from time to time by replacing poorer performing algorithms with better performing algorithms, the longevity of the system is assured. 

The objective of The Quant Fund has always been very clear. To provide returns (net) to investors exceeding 20% per annum in a reliable, consistent and predictable manner. 

The most objective method of comparing investments is to use the Sharpe ratio. The Sharpe ratio (described below) is an independent mathematical measure of the quality of an investment, and it allows us to compare investments against each other. The higher the value of the Sharpe ratio, the better the quality of the investment. 

For the period Jan 2020 – June 2023; 

• The Sharpe ratio of the ASX-200 accumulation index (AXJOA) was 0.4.
• The Sharpe ratio of the World MSCI index was 0.43.
• The Sharpe ratio of The Quant Fund (back-test) was 4.3

This demonstrates that The Quant Fund is a superior investment to that of the ASX by some 10 times.

No. The Quant Fund is generally open to wholesale investors only. But the Trustee has some discretion to admit a limited number of non-wholesale investors per annum. 

An investor is regarded as a wholesale investor under one of 3 main conditions: 

• As a sophisticated investor. The investor has: - -- Net assets of at least $2.5m, or Gross income of at least $250,000 per annum for the previous two years. 
• Professional investor. The investor has to have managed or controlled at least $10m of gross assets. 
• Experienced investor. 

An investor is also regarded as a wholesale investor under a variety of other conditions / categories. 

Should you be uncertain as to whether you qualify as a wholesale investor, please contact us. 

$50,000.00

No minimum investment period, but we do recommend a 3 month period to obtain the best outcome.

The Quant Fund strives to achieve a return of 20% per annum in both the short term (several months) and the long term (several years). 

Generally, within a period of less than 3 months, the value of your investment in The Quant Fund will be in positive territory and thereafter the value is expected to increase in an approximately straight line upwards at the rate of 20% per annum. 

The best method and most widely used method to compare investments is to use the Sharpe ratio. The Sharpe ratio is a measure of the quality of an investment. It takes both performance and risk into account. 

Do you know what the Sharpe ratio is of your other investments? 

See a more detailed description of the Sharpe ratio by clicking HERE. 

The higher the Sharpe ratio, the better the quality of an investment. 

The ASX-200 accumulation index (AXJOA) and the MSCI world index have Sharpe ratios that range between 0.38 to 0.45, as measured on a monthly basis from January 2020. 

Most funds will have Sharpe ratios that range between 0.3 and 1.2. 

The Quant Fund has been designed to have a Sharpe ratio that exceeds 2.5. The Sharpe ratio of the Quant Fund has been ranging between 4.0 and 4.5.

The Sharpe ratio is an independent mathematical measure. It clearly demonstrates the superiority of The Quant Fund over the ASX-200 and over traditional equity-based funds. 

Do you know what the Sharpe ratio is of your other investments? 

See a more detailed description of the Sharpe ratio by clicking HERE. 

The Quant Fund has 3 benchmarks. 

1. The ASX-200 Accumulation Index (AXJOA): 

This particular index has been selected because it is a broad representation of the market, being 200 of the largest companies on the ASX and because it includes the value of dividends. The ASX-200 Index (XJO) does not include the value of dividends. 

When using an index to compare the performance of the ASX against other investments, then the ASX-200 Accumulation Index (AXJOA) is the correct index to use. 

2. The MSCI World Index:

The MSCI World Index is a broad global equity index that represents large and mid-cap equity performance across all 23 developed markets countries. Since many investors have interests in Stock Markets beyond Australia (S&P500, DOW, Nasdaq, FTSE, etc.) it is important for the Quant Fund to be compared against international markets. 

3. Twenty percent per annum (20% pa): 

The Quant Fund establishes new and improved standards of performance, which makes the ASX-200 and MSCI World Index benchmarks almost irrelevant because of the very big difference in performance between the Quant Fund and these benchmarks. 

A more meaningful benchmark for the Quant Fund is therefore 20% per annum. 

The performance of the Quant Fund is compared against all 3 benchmarks each month. 

There are many reasons why the Quant Fund achieves superior levels of performance, but the main 3 reasons are: 

1. Re-cycling of funds:

The Quant Fund consists of a suite of automated software algorithms trading the foreign exchange markets on a 24 x 5 basis. 

These algorithms have been selected based on strong sustainable performance and low drawdowns, which has been extensively back-tested.

Each algorithm generates a large number of trades each day, the duration of which can be from several minutes to several days. The same funds are therefore re-cycled into new trades so that the same funds can be used for several trades per day or per week. 

This method results in the recycling of funds over and over again, deploying the funds very efficiently, and getting the most out of the monies being traded in order to maximise performance.  

2. Trading time: 

The Quant Fund trades a variety of markets on a 24 X 5 basis. This means it is active in the markets approximately 3 times longer than equity-based funds, maximising performance. 

3. Controllability: 

The major reason the Quant Fund can achieve high levels of performance is because the designer / architect of such systems has some control over the system. A quant / algorithmic / systematic system can be designed to achieve a particular result (broadly). This is the major advantage that quant systems have over traditional equity-based funds. 

1.  Quant trading systems are very different to traditional equity-based investment systems, so it is not reasonable or logical to expect the performance of quant systems to be similar to those of traditional equity-based systems. 

2. The superior results obtained by quant systems do not occur by chance or by luck. These systems have been designed to achieve their objectives. 

3. The system used by the Quant Fund has performed live in various forms since mid-2018 and the live results were in line with the design objectives. 

4.  The system has been extensively back-tested and forward-tested. The results of the forward-testing (live testing) were in line with the design objectives. 

5.  Quant trading is not new. The Medallion Fund by Renaissance Technologies has been active for more than 30 years. In the period from 1988 to 2018 (30 years) the Medallion Fund achieved average gross returns of 66% per annum. The superior results achieved by quant / algorithmic / systematic trading systems are therefore quite normal. 

6. The Sharpe Ratio is a mathematical measure of the quality of any investment. This independent measure consistently demonstrates the superiority of the Quant Fund over the ASX-200 Accumulation Index (AXJOA) and the MSCI World Index by a factor of 5 to 10. 

The performance of each algorithm is designed to work within a cone of performance. Each algorithm is monitored continuously. Should the performance of any individual algorithm begin to operate outside of its expected cone of performance, trading on this particular algorithm will cease and the algorithm will be replaced by another algorithm. 

On this basis, these performance levels can continue in perpetuity. 

The key is to have a fund management team that continues to develop new algorithms in perpetuity. 

The risk objective of the fund is to keep the peak to trough of any drawdown to less than 20%. This is achieved as follows: 

1. By the design of the system:

a) The system has been designed to have multiple trading strategies (algorithms), running on multiple timeframes, using multiple trading instruments, achieving maximum diversification. 

b) The system has been designed to execute many small trades per day, and to keep the size of each trade very small so that the loss of any individual trade will have a negligible effect on the value of the overall portfolio.

c) In the back-testing of the system, the maximum draw down is approximately 4%. 

2. Algorithm design: 

A “stop loss” feature is built into each algorithm that automatically restricts the downside of any algorithm. 

3. Portfolio design: 

A “stop loss” feature is built in at the portfolio level of the system that automatically restricts the downside of the portfolio. 

4. Trading instrument selection:

In order to minimise the spread on any trade, the choice has been made to only invest in trading instruments that have very high volumes. The trading instruments used are limited to indices, major commodities and major forex pairs. 

5. Minimise exposure: 

Care is taken at the portfolio level to ensure that the portfolio is not over exposed to any individual trading instrument.

6. Monitoring the performance of each individual algorithm. Should the performance deviate beyond the expected cone of performance for any individual algorithm, trading on that algorithm will cease and it will be replaced with a new algorithm. 

The normal model used by most funds is to charge a percentage of the value of the fund in the form of an annual management fee. In addition, some funds will have entry fees, exit fees, spread fees (the difference between buying and selling), service fees, administration fees, etc.

The main problem with this model is that there is no link between the performance of the fund and its earnings. There is absolutely no incentive whatsoever for a fund manager to maximize returns to the investor.

The larger the size of the fund, the bigger is this problem. Irrespective of the performance of the fund, the fees earned by the entity managing the fund are largely unaffected and guaranteed.

This represents a conflict of interests in that the interests of the investor and the fund manager are not 100% aligned. Under this normal model, the objective of the fund manager is simply to grow the “funds under management”, while the objective of the investor is to maximize returns (with low risks).

Increasingly, some traditional equity-based funds are beginning to introduce performance fees, but this is in addition to their existing fees. And the value of the performance fee is still negligible compared to their other fees. But it is a trend in the right direction.

By contrast, investors in the Quant Fund can be assured that their interests are 100% aligned with those of the Quant Fund Investment Management Company as the only income the Investment Management Company receives is performance fee income. This demonstrates the confidence we have in our system and in its ability to generate profits consistently.

Yes. The Quant Fund operates as a CAR (Corporate Authorized Representative) of Stratfund Ltd, AFSL No. 508215.