The fun factor

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Being a quant manager is not easy. You spend your time analysing numerous data to try and separate noise from the fundamental truths, but whatever you find can seem at best complicated, if not obfuscating, to many people. Every formula you use in your presentations reduces your audience by half and you often end up looking like a lonely nerd. The best proof of this lack of understanding – and appreciation – is the enormous gap between the number of Nobel prizes awarded to quant researchers in the last decade, and the negligible market share of quant asset management.

That’s why, at THEAM, we try to get out of this vicious circle by using the Fun Factor. The trick is to make the subject fun before you actually try to explain what is behind it.

PICK A QUANT FACTOR, ANY ONE

Thus, this summer, as a first step, we launched the THEAM Summer quiz. The idea behind this 14-question personality quiz pastiche was to determine which of the four main alpha quant factors (Value, Profitability, Momentum and Low Vol; see also “The four cardinal virtues of quantitative equity investment, according to Plato” ) suits your personality best. We sent the quiz to sales staff and managers at BNP Paribas Asset Management in July and received close to 200 answers. This amounted to 200 occasions for us to explain at least one of the factors.

Being quants, we could not resist the temptation to analyse the results. Of course, they are heavily biased since we have only 200 answers from a population that is not representative of the global population and these answers are in a quiz that was not meant to be unbiased. However, the results are surprisingly in line with what we thought were the dominant styles in asset management.

VALUE SUITS MOST

Value takes the lead by far, dominating in 47% of the end-profiles. Profitability, usually called Growth in asset management styles, is number two, underscoring the predominance of fundamental styles, i.e. the ones that use balance sheet data from companies to determine equity allocations. The classic categorisation of funds along the Value/Growth lines probably played a role in creating this supremacy.

By contrast, Low Vol and Momentum, the two styles based purely on market data, together lead in only 16% and 13% respectively, of the profiles chosen. It is true that these behaviour-driven styles have a counter-intuitive aspect, which can explain their relatively low popularity.

A MIX TO ADDRESS THE PITFALLS

However, it’s really too bad that the results are not better balanced since we know that Momentum and Low Vol can help address some of the dangers of the two dominant styles. Applying Plato’s insights, Courage is dangerous without Prudence and Justice is blind without Moderation.

THEAM summer quiz results (July 2014)

etienne graph

 

Source: THEAM, BNP Paribas Asset Management
Etienne Vincent

Global Head of Quantitative Management

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