Viewpoints

Unlocking Alternatives: Possibilities in Quantitative Analytics

Discover the potential advantages of quantitative investing and how investors can think about incorporating quant strategies in their portfolios with Nick Granger, portfolio manager, quantitative analytics.

MORE ON ALTERNATIVES AT PIMCO

More from this section

Read Transcript

Text on screen: PIMCO

Text on screen: PIMCO provides services only to qualified institutions and investors. This is not an offer to any person in any jurisdiction where unlawful or unauthorized.

Text on screen: What are some of the potential advantages of quantitative investing?

Images of PIMCO trade floor

Nick Granger: I think people tend to use quant and systematic fairly synonymously. What we mean by either is really a process whereby the day to day trading decisions are delegated to a predetermined rule,

Text on screen: Nick Granger, Portfolio Manager, Quantitative Analytics

rather than every single trade being thought through by a human being.

Full page list graphic – Title: Potential advantages of quantitative investing:  Bullets: Creating diversification by removing biases, Greater scalability

And this approach, at least to my mind, has two distinct advantages over a more traditional discretionary approach. First of all, by being systematic, you can create sort of inherent diversification, by taking human biases out of the investment process.

I think another advantage of quant is, it allows for greater scalability. A lot of quantitative strategies rely on exploiting a small edge, which you want to repeat many, many times, be that across many markets, or multiple times through time. Quant traders are sort of thinking at a slightly higher level, in terms of building, researching, and refining the models that are themselves going to make those trading decisions.

So, our decision making is really about how we build the models and then how we allocate those models once they're active.

Text on screen: Do you think the markets for quant strategies have become crowded?

When you go and look at the data, you just don’t see that. It’s just not there in the data at all.

Images of Wall Street and the New York Stock Exchange

Given the way quants trade, especially things like trend following, there’s no way systematic strategies are going to be affecting S&P futures. They're just too small a part of the market.

But there are parts that it could affect. So if you look at small futures markets, things like orange juice, that is diversifying, it’s logistically easier to trade, quants tend to love markets like that, those are the places that you would go and look for crowding.

Split Screen: Text on Left – We don’t seen signs of crowding in small niche markets, Image on right: Orange juice cartons moving on a conveyor belt.

And again, we don’t see the signs of crowding any more in those small, niche markets than we do in the big markets.

I think something we have found, is the markets that tend to get crowded tend to be the ones quants like to trade. So, specifically, equities, and the vanilla futures markets. Once you move away from these, to emerging markets, to swaps, to mortgages, credit, some of the more esoteric commodities like iron ore, carbon emission, things like that, quants tend to be less active in these markets. There’s perhaps a slightly more healthy ecosystem where, if you take the

Images of an iron ore quarry

example of commodities, they're more dominated by producers and consumers than systematic traders. And that’s meant, on the one hand, diversification of these markets has remained high, but on the other hand, perhaps there is a little bit more alpha to exploit as quants are playing in a space where there are less quants operating.

Text on screen: How can investors think about incorporating quant strategies in their portfolios?

So, managed futures, I think, is a really good example of the benefits of a systematic approach.

Image: TITLE – Systematic trend-following. A line graph shows investing from a trend perspective, with no position at choppy markets, enter position when breakout move signals new position, and exit position when reversal of prior move signals position exit.

So, for our purposes, managed futures really means trend following, and it is as simple as this chart would have you believe. Essentially, you buy stuff if it’s going up, and you sell stuff if it’s going down. The skill is very much in the implementation: so, what type of trends do you target, how do you scale in and out of those trends, what’s the universe of assets you cover, and so on?

Trends has a number of really appealing properties, specifically diversification. And when you talk about human biases, and systematic being able to overcome these biases, trends is a great example, and then there’s a very common human bias to cut winning positions, and to cut winning positions too soon and take profit. And a trend following strategy, with the appropriate controls, is able to stay in those trends that go on longer and further than perhaps most people would expect.

Image: TITLE – Trend-following has historically provided diversification. SUBTITLE – When it was most needed. A chart shows the 10 worst quarters in S&P 500 since 2000, including S&P 500, SG trend, and difference.

But I think perhaps even more important, is it has extremely valuable defensive properties. And this means it tends to perform well in stressed environments, when volatility is going up, typically when equity markets are selling off

It’s been very good around some of the most recent crises, particularly the GFC in 2008.

Text on screen: For more insights and information, visit pimco.com

Text on screen: PIMCO 50 1971-2021

DISCLOSURE


The use of quantitative investment strategies to evaluate securities or securities markets based on certain assumptions concerning the interplay of market factors is speculative and may increase the risk of loss. Models used may not adequately take into account certain factors, may not perform as intended, and may result in a decline in the value of an investment, which could be substantial.  Commodities contain heightened risk, including market, political, regulatory and natural conditions, and may not be appropriate for all investors. Managed futures contain heightened risk, including wide price fluctuations and may not be appropriate for all investors. Investing in foreign-denominated and/or -domiciled securities may involve heightened risk due to currency fluctuations, and economic and political risks, which may be enhanced in emerging markets. Swaps are a type of derivative; swaps are increasingly subject to central clearing and exchange-trading. Swaps that are not centrally cleared and exchange-traded may be less liquid than exchange-traded instruments. Derivatives and commodity-linked derivatives may involve certain costs and risks, such as liquidity, interest rate, market, credit, management and the risk that a position could not be closed when most advantageous. Commodity-linked derivative instruments may involve additional costs and risks such as changes in commodity index volatility or factors affecting a particular industry or commodity, such as drought, floods, weather, livestock disease, embargoes, tariffs and international economic, political and regulatory developments. Investing in derivatives could lose more than the amount invested. Diversification does not ensure against loss.

References to specific securities and their issuers are not intended and should not be interpreted as recommendations to purchase, sell or hold such securities. PIMCO products and strategies may or may not include the securities referenced and, if such securities are included, no representation is being made that such securities will continue to be included.  It is not possible to invest directly in an unmanaged index.

Statements concerning financial market trends or portfolio strategies are based on current market conditions, which will fluctuate. There is no guarantee that these investment strategies will work under all market conditions or are appropriate for all investors and each investor should evaluate their ability to invest long-term, especially during periods of downturn in the market. No representation is being made that any account, product, or strategy will or is likely to achieve profits, losses, or results similar to those shown.

This material contains the opinions of the manager and such opinions are subject to change without notice. This material has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product in any jurisdiction. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.

PIMCO as a general matter provides services to qualified institutions, financial intermediaries and institutional investors. Individual investors should contact their own financial professional to determine the most appropriate investment options for their financial situation. This is not an offer to any person in any jurisdiction where unlawful or unauthorized. | Pacific Investment Management Company LLC, 650 Newport Center Drive, Newport Beach, CA 92660 is regulated by the United States Securities and Exchange Commission. | PIMCO Europe Ltd (Company No. 2604517) is authorised and regulated by the Financial Conduct Authority (12 Endeavour Square, London E20 1JN) in the UK. The services provided by PIMCO Europe Ltd are not available to retail investors, who should not rely on this communication but contact their financial adviser. | PIMCO Europe GmbH (Company No. 192083, Seidlstr. 24-24a, 80335 Munich, Germany), PIMCO Europe GmbH Italian Branch (Company No. 10005170963), PIMCO Europe GmbH Irish Branch  (Company No. 909462), PIMCO Europe GmbH UK Branch (Company No. BR022803) and PIMCO Europe GmbH Spanish Branch (N.I.F. W2765338E) are authorised and regulated by the German Federal Financial Supervisory Authority (BaFin) (Marie- Curie-Str. 24-28, 60439 Frankfurt am Main) in Germany in accordance with Section 32 of the German Banking Act (KWG). The Italian Branch, Irish Branch, UK Branch and Spanish Branch are additionally supervised by: (1) Italian Branch: the Commissione Nazionale per le Società e la Borsa (CONSOB) in accordance with Article 27 of the Italian Consolidated Financial Act; (2) Irish Branch: the Central Bank of Ireland in accordance with Regulation 43 of the European Union (Markets in Financial Instruments) Regulations 2017, as amended; (3) UK Branch: the Financial Conduct Authority; and (4) Spanish Branch: the Comisión Nacional del Mercado de Valores (CNMV) in accordance with obligations stipulated in articles 168 and  203  to 224, as well as obligations contained in Tile V, Section I of the Law on the Securities Market (LSM) and in articles 111, 114 and 117 of Royal Decree 217/2008, respectively. The services provided by PIMCO Europe GmbH are available only to professional clients as defined in Section 67 para. 2 German Securities Trading Act (WpHG). They are not available to individual investors, who should not rely on this communication. | PIMCO (Schweiz) GmbH (registered in Switzerland, Company No. CH-020.4.038.582-2). The services provided by PIMCO (Schweiz) GmbH are not available to retail investors, who should not rely on this communication but contact their financial adviser. | PIMCO Asia Pte Ltd (Registration No. 199804652K) is regulated by the Monetary Authority of Singapore as a holder of a capital markets services licence and an exempt financial adviser. The asset management services and investment products are not available to persons where provision of such services and products is unauthorised. | PIMCO Asia Limited is licensed by the Securities and Futures Commission for Types 1, 4 and 9 regulated activities under the Securities and Futures Ordinance. PIMCO Asia Limited is registered as a cross-border discretionary investment manager with the Financial Supervisory Commission of Korea (Registration No. 08-02-307). The asset management services and investment products are not available to persons where provision of such services and products is unauthorised. | PIMCO Investment Management (Shanghai) Limited Unit 3638-39, Phase II Shanghai IFC, 8 Century Avenue, Pilot Free Trade Zone, Shanghai, 200120, China (Unified social credit code: 91310115MA1K41MU72) is registered with Asset Management Association of China as Private Fund Manager (Registration No. P1071502, Type: Other) | PIMCO Australia Pty Ltd ABN 54 084 280 508, AFSL 246862. This publication has been prepared without taking into account the objectives, financial situation or needs of investors. Before making an investment decision, investors should obtain professional advice and consider whether the information contained herein is appropriate having regard to their objectives, financial situation and needs. | PIMCO Japan Ltd, Financial Instruments Business Registration Number is Director of Kanto Local Finance Bureau (Financial Instruments Firm) No. 382. PIMCO Japan Ltd is a member of Japan Investment Advisers Association and The Investment Trusts Association, Japan. All investments contain risk. There is no guarantee that the principal amount of the investment will be preserved, or that a certain return will be realized; the investment could suffer a loss. All profits and losses incur to the investor. The amounts, maximum amounts and calculation methodologies of each type of fee and expense and their total amounts will vary depending on the investment strategy, the status of investment performance, period of management and outstanding balance of assets and thus such fees and expenses cannot be set forth herein. | PIMCO Taiwan Limited is managed and operated independently. The reference number of business license of the company approved by the competent authority is (109) Jin Guan Tou Gu Xin Zi No. 027. 40F., No.68, Sec. 5, Zhongxiao E. Rd., Xinyi Dist., Taipei City 110, Taiwan (R.O.C.). Tel: +886 2 8729-5500. | PIMCO Canada Corp. (199 Bay Street, Suite 2050, Commerce Court Station, P.O. Box 363, Toronto, ON, M5L 1G2) services and products may only be available in certain provinces or territories of Canada and only through dealers authorized for that purpose. | PIMCO Latin America Av. Brigadeiro Faria Lima 3477, Torre A, 5° andar São Paulo, Brazil 04538-133. | No part of this publication may be reproduced in any form, or referred to in any other publication, without express written permission. PIMCO is a trademark of Allianz Asset Management of America L.P. in the United States and throughout the world. ©2021, PIMCO.

CMR2021-0614-1680314

Filters: Reset All

Filters

Close Filters Dropdown
  • Tags

    Reset

    Close
  • Category

    Reset

    Bond by Bond
    Careers
    Economic and Market Commentary
    Investment Strategies
    PIMCO Foundation
    PIMCO Education
    View from the Investment Committee
    View From the Trade Floor
    Viewpoints
    Education
    Close
  • Order By

    Reset

    Alphabetical
    Most Recent
    Close
() filters applied

Multimedia Finder

Filter By:
  • Bond by Bond
  • Careers
  • Economic and Market Commentary
  • Investment Strategies
  • PIMCO Education
  • View from the Investment Committee
  • Viewpoints
  • Understanding Investing
  • A
  • B
  • C
  • D
  • F
  • G
  • H
  • I
  • K
  • L
  • M
  • N
  • O
  • P
  • Q
  • R
  • S
  • T
  • W
  • Y
Clear
Tina Adatia
Global and Core Fixed Income Product Strategist
Berdibek Ahmedov
Product Strategist, Global and Real Return
Mike Amey
Joshua Anderson
Head of Global ABS Portfolio Management
Del Anderson
Credit Analyst
Robert Arnott
Founder and Chairman, Research Affiliates
Andrew Balls
CIO Global Fixed Income
Justin Blesy
Asset Allocation Strategist
Meredith Block
ESG Research Analyst
Philippe Bodereau
Portfolio Manager, Global Head of Financial Research
David L. Braun
Head of US Financial Institutions Portfolio Management
Nathaniel Brown
Director of the PIMCO Foundation
Erin Browne
Portfolio Manager, Multi-Asset Strategies
Esteban Burbano
Fixed Income Strategist
Grover Burthey
Portfolio Manager, ESG
Libby Cantrill
Executive Office, Public Policy
Stephen Chang
Portfolio Manager, Asia
Devin Chen
Portfolio Manager, Commercial Real Estate
Josh Davis
Global Head of Client Analytics
Laura Deneke
Sr. Vice President, Product Strategist
Pramol Dhawan
Head of Emerging Markets Portfolio Management
Joachim Fels
Global Economic Advisor
David Fisher
Co-Head of Strategic Accounts
Gene Frieda
Global Strategist
Nick Granger
Portfolio Manager, Quantitative Analytics
Adam Gubner
Portfolio Manager, Distressed Debt
Gregory Hall
Head of U.S. Global Wealth Management
David Hammer
Head of Municipal Bond Portfolio Management
Mary Hoppe
Daniel H. Hyman
Head of Agency MBS Portfolio Management
Daniel J. Ivascyn
Group Chief Investment Officer
Mark R. Kiesel
CIO Global Credit
Kaboo Leung
Christine Long
Head of Retirement Marketing
Nicola Mai
Portfolio Manager, Sovereign Credit Analyst
Raji O. Manasseh
Equity Strategist
Jason Mandinach
Head of Alternative Credit and Private Strategies
Samuel Mary
ESG Research Analyst
Scott A. Mather
CIO U.S. Core and Sustainable Investments
Sean McCarthy
Head of Municipal Credit Research
Mohit Mittal
Portfolio Manager, Multi-Sector
James Moore
Alfred T. Murata
Portfolio Manager, Mortgage Credit
John Murray
Portfolio Manager, Commercial Real Estate
John Nersesian
Head of Advisor Education
Roger Nieves
Senior Advisor
Jason Odom
Strategist, Asset Allocation
Rick Pagnani
Head of Insurance-Linked Securities
Sonali Pier
Portfolio Manager, Multi-Sector Credit
William Quinones
Product Strategist
Lupin Rahman
Head of EM Sovereign Credit
Libby Rodney
Steve A. Rodosky
Portfolio Manager, Real Return and Long Duration
Emmanuel Roman
Chief Executive Officer
Manusha Samaraweera
Fixed Income Strategist
Steve Sapra
Client Solutions & Analytics
Jerome M. Schneider
Head of Short-Term Portfolio Management
Marc P. Seidner
CIO Non-traditional Strategies
Emmanuel S. Sharef
Portfolio Manager, Asset Allocation and Residential Real Estate
Greg E. Sharenow
Portfolio Manager, Real Assets
Anmol Sinha
Fixed Income Strategist
Candice Stack
Head of Client Management, Americas
Kimberley Stafford
Global Head of Product Strategy
Cathy Stahl
Global Head of Marketing
Christian Stracke
Global Head of Credit Research
Geraldine Sundstrom
Portfolio Manager, Asset Allocation, EMEA
Richard Thaler
Distinguished Service Professor of Economics and Behavioral Science at the University of Chicago's Booth School of Business
Jessica K. Tom
Senior Credit Analyst
Eve Tournier
Head of European Credit Portfolio Management
Francois Trausch
CEO and CIO, Allianz Real Estate
Jerry Tsai
Quantitative Research Analyst
Megan Walters
Global Head of Research, Allianz Real Estate
Qi Wang
Portfolio Manager, Global Macro Hedge Fund Strategies
Jamie Weinstein
Portfolio Manager, Head of Corporate Special Situations
Tiffany Wilding
North American Economist
Andrew T. Wittkop
Portfolio Manager, Treasuries, Agencies, Rates
Nelson Yuan
Alternative Strategist
PIMCO
Ben S. Bernanke
Chair, Global Advisory Board
Chris Brightman
Chief Executive Officer and Chief Investment Officer, Research Affiliates
  • Alphabetical
  • Most Recent
Section : Date : Experts :
Reset All
Finding Unexpected Opportunities in Core Bonds
5-Year Outlook: Asset Classes to Consider