Quantitative analysis is not hard to define. A basic definition would be an analysis of a market or market segment by using highly complex and sophisticated statistical mathematics and modeling. Getting a handle on that definition is not hard, but applying it is probably best left to professionals.
While quantitative investing seems complex, that could be part of the allure as data suggest investors are fond of quant funds.
“According to FUSE Research, over the past four years, there have been over $79 billion net flows into quantitatively managed mutual funds,” notes 361 Capital. “It is important to note that there is a wide spectrum of quantitative strategies. On one end of the spectrum are passively-run, low-fee ETFs, such as factor-based ETFs where stocks are chosen based solely on a mathematical or rules-based algorithm.”
Speaking of quant funds, this is a growing segment of the broader exchange-traded funds universe in terms of sheer population. However, some quant funds in the ETF space still have work to do to captivate investors’ attention and assets.
For investors looking to tap their inner math nerds, here are some of the best quant funds to consider.
QuantX Dynamic Beta US Equity ETF (XUSA)
Expense Ratio: 0.59%, or $59 annually per $10,000 invested
This quant fund provides dynamic factor exposure via the QuantX Dynamic Beta US Equity Index and is part of a broader suite of quant funds that debuted just over two years ago.
According to QuantX Funds, QuantX Dynamic Beta US Equity ETF (BATS:XUSA) identifies “companies that have more upside (good) volatility versus downside (bad) volatility using option market data. The overall portfolio beta is designed to dynamically adjust to changing market volatility in order to optimize risk-adjusted returns.”
XUSA moves to lower beta stocks when market conditions dictate and when higher beta fare show favorable risk/reward traits, the quant fund can shift to those names.
“By selecting companies that are favorable according to the options market (bottom-up) and optimizing risk (top-down), it is possible to achieve higher equity market returns than the benchmark Russell 1000,” according to the issuer.
Hull Tactical US ETF (HTUS)
Expense Ratio: 0.92%
The Hull Tactical US ETF (NYSEARCA:HTUS) is an actively managed quant fund that uses long and short ETFs to track the S&P 500.
“HTUS’ objective is to provide exposure to the long-term appreciation of the equity market regardless of the direction of the broader market. The fund employs a disciplined process to evaluate indicators of market performance, anticipate market direction, and appropriately position the portfolio,” according to the issuers.
Cambria Global Momentum ETF (GMOM)
Expense Ratio: 1.03%
The Cambria Global Momentum ETF (BATS:GMOM) is an actively managed multi-asset quant fund that has a broad selection universe including domestic and foreign stocks, bonds, real estate, commodities and currencies. GMOM uses other ETFs to accomplish that objective.
“The Fund intends to target investing in the top 33% of a target universe of approximately 50 ETFs based on measures of trailing momentum and trend,” according to Cambria.
At the end of last year, eight of GMOM’s top 10 holdings were fixed income ETFs. That group included the iShares 7-10 Year Treasury Bond ETF (NYSEARCA:IEF) and the Vanguard Short-Term Corporate Bond ETF (NASDAQ:VCSH). Over the past three years, the $111.67 million GMOM posted average annualized returns of 5.55%.
U.S. Quantitative Value ETF (QVAL)
Expense Ratio: 0.49%
There are basic value ETFs and then there is the U.S. Quantitative Value ETF (BATS:QVAL), which offers value investors a host of advantages without being overly complex or opaque. Look at QVAL this way: cheap stocks are not always quality stocks and quality stocks are not always cheap, so sometimes combining those factors in quantitative fashion benefits investors.
QVAL attempts to identify the cheapest quality stocks and part of the quality effort includes a forensic accounting screen that helps avoid companies that could incur financial distress.
After removing companies that could see financial stress, QVAL’s “remaining picks are then sorted by earnings before interest and taxes, or EBIT, over total enterprise value, or TEV. TEV is equal to market cap plus debt, minus excess cash, preferreds and minority interests,” according to ETF Trends.
Year-to-date, QVAL is up 17% while the S&P 500 Value Index is higher by 10%.
IQ Chaikin U.S. Small Cap ETF (CSML)
Expense Ratio: 0.35%
Relative to some of the other offerings in the quant fund universe, the IQ Chaikin U.S. Small Cap ETF (NASDAQ:CSML) is a more approachable idea for a broader swath of investors. The fund follows the NASDAQ Chaikin Power US Small Cap Index, providing multi-factor small-cap exposure.
At the end of January, over 53% of CSML’s roster was allocated to financial services and industrial stocks. Factor inputs used in CSML’s security selection process include growth, value and technical analysis. CSML’s technical component considers rate of change, price trends and relative strength, among other factors.
When small-cap stocks are in favor, CSML offers the potential to outperform traditional benchmarks. Year-to-date, the quant fund is beating the Russell 2000 Index by 120 basis points.
Vesper US Large Cap Short-Term Reversal Strategy ETF (UTRN)
Expense Ratio: 0.75%
The Vesper US Large Cap Short-Term Reversal Strategy ETF (NYSEARCA:UTRN) may not be a quant fund in the purest sense of the phrase, but it is a unique avenue for investors looking to bottom fish beaten-up stocks without the need for stock picking.
UTRN follows the Vesper U.S. Large Cap Short-Term Reversal Index and uses the Chow Ratio to benefit from short-term reversals in stocks that have recently been faltering.
“UTRN provides investors with the opportunity to capitalize on the tendency for stocks which have experienced sharp, short-term declines to quickly bounce back,” according to the issuer. “UTRN attempts to improve on this market anomaly by applying a proprietary methodology — the Chow Ratio — to identify stocks that have the greatest potential for a weekly rebound.”
This year, UTRN is attracting some interest from investors and rewarding that faith with a gain of almost 15%.
SPDR MFS Systematic Growth Equity ETF (SYG)
Expense Ratio: 0.61%
The aim of the SPDR MFS Systematic Growth Equity ETF (NYSEARCA:SYG) is to provide a quantitative approach that could outperform the Russell 1000 Growth Index.
SYG “strives for capital appreciation by applying a consistent, disciplined bottom-up stock selection and portfolio construction process with the goal of generating consistent, long-term risk-adjusted performance,” according to State Street.
SYG holds nearly 50 stocks, many of which qualify as mega caps, as highlighted by the fund’s weighted average market value of $230.14 billion.
As is the case with standard growth ETFs, SYG features hefty allocations to technology and consumer discretionary stocks. SYG is beating the S&P 500 Growth Index by 370 basis points this year.
As of this writing, Todd Shriber did not hold a position in any of the aforementioned securities.