What is a Quant Fund?

A quant fund is typically a mutual fund that picks investments based solely on mathematical analysis.

How Does a Quant Fund Work?

For example, let's say John Doe runs the XYZ Fund. He uses the Quadrix system to screen and select stocks. The Quadrix system uses more than 80 variables in seven categories (momentum, quality, value, financial strength, earnings estimates, performance and volume) to pick stocks. It assigns a value to each variable, and John picks the ones with the highest scores.

Quant funds are often active traders. They hold their positions for relatively short amounts of time, which means that they can sometimes increase the volatility of the markets.

Why Does a Quant Fund Matter?

A quant fund is run more by math than by humans. That's because the fund's model will signal what to buy and sell and when. The idea is that humans are emotional, and emotion has no place in investing. However, quant funds run the risk of overlooking the fundamentals -- the less tangible aspects of companies that also add value (e.g., the quality of certain managers, the taste of the product, expectations about future marketing promotions, etc.). Nonetheless, quant funds that have good models can make their investors very wealthy.