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Can quant funds help diversify a portfolio during market volatility?

Benefits of Quant Funds During Volatile Times

Quantitative funds, also known as quant funds, are gaining popularity as a smart approach to diversifying investment portfolios, especially during market turbulence. These funds use computer algorithms and quantitative techniques to locate and trade stocks, providing a source of steady returns.

According to Ram Kalyan Medury, Founder & CEO of Jama Wealth, quant funds offer diversification by exposing investors to a wide range of assets and industries, producing returns not typically associated with traditional asset classes like equities and bonds.

Sonam Srivastava, Founder at Wright Research, highlighted several ways quant funds benefit a portfolio during volatile times. These include a systematic approach to managing risk, diversification through a wide range of investment instruments, low correlation with other asset classes, tactical allocation shifts based on market direction, and the potential for outperformance during market stress or uncertainty.

However, there are risks associated with quant funds, as pointed out by Ram Kalyan Medury. These risks include market fluctuations, liquidity issues with less liquid securities, model flaws, data inaccuracies, human errors, and systematic risks affecting the entire market.

Vivek Sharma, director at Gulaq, emphasized the importance of diversifying portfolios with both quant and discretionary funds to mitigate losses during market volatility. He also advised against relying on a single factor in quant funds, suggesting a multi-factor approach for better diversification.

In conclusion, while quant funds can help diversify a portfolio and potentially lower risk, investors should approach them as part of a comprehensive investing plan that considers their risk tolerance and financial objectives. It is essential to understand the benefits and risks associated with quant funds before incorporating them into an investment strategy.


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