Quantitative hedge funds may have outperformed the human traders at rival funds over the past three years, but even algorithm-driven strategies are now incurring losses as a result of China’s ongoing stock market slump, according to a report by Bloomberg.
The report cites Shenzhen PaiPaiWang Investment & Management, a data provider which tracks hedge funds, as revealing that private quant funds lost 7.2% on average last month, underperforming the benchmark CSI 300 stock index, which dropped 6.3%.
Traditional hedge funds may have seen even bigger losses, but the performance is in sharp contrast to the average 4.9% gain recorded by quant funds last year, as the CSI 300 went into free fall.
Since their peak in 2021, mainland Chinese stocks have lost about $5tn of market value despite a raft of regulatory moves and government initiatives aimed at shoring up markets.
These measure include newly imposed curbs on short trading which, along with a recent slump in the small-cap stocks favoured by quants, are posing fresh challenges.
The report quotes Li Minghong, Portfolio Manager at Beijing Yikun Asset Management, as saying that: “Quants’ performance has been under a lot of pressure this year,” adding that “Their alpha is likely to improve when the market stabilises, although their advantages relative to discretionary funds may not be as significant as in recent years.”