Greg Vaughan: I think a lot about this concept of knowing what you don’t know, knowing where to restrict yourself and when to play, if you like. And in this market that is a very nuanced thing. When we look across the market and think about the problems for a quant process, I think we come to quite different conclusions than other managers. Differences between the quants are probably underestimated. There are those whose processes have a comfortably broad application, without too much differentiation, and those that really start to segment it up. The Australian market is very peculiar. The text book industrial company, that people tend to think of when they can see quantitative processes, represents about a third of our market, when you take off financials and resources and asset players. But in the US it’s about two-thirds of the market. So, it encourages a more general view of process in the US.
Rixhard Dalidowicz: Is there an environment where quant investing works better than fundamental? For example, is quant a lot better in an environment in a full market, with markets going up, or merely the trend? When the market’s very volatile, when leadership is changing dramatically between sectors and stocks, quants can’t pick up on a theme, because by the time they get the information into their models, they’ve missed it.
Ross Blakers: They tend to get hurt at points of inflection. Kristian Fok: A lot of quants have processes in place to identify how reliable a signal is likely to be and they can either dial it up or down relative to others in an certain environment. That’s quite acceptable. But if they have a stated philosophy and then suddenly say “Ah, it’s not working …” and change it, that’s quite a different situation. Ross Blakers: Since I have been covering quant managers, I’ve never seen an instance where someone has really thrown out the core philosophy and adopted a new one.
Greg Bright: Richard, does AustralianSuper have a different way of looking at risk now, post crisis? Is risk different now than it was two years ago? Rcihard Dalidowicz: Risk is in today’s terms, the risk of losing your money, risk of losing capital more than anything. And in terms of diversification in our portfolio at the balanced plan level, there is plenty of diversification there. The key thing that we’re thinking about at the moment is the economic environment that we’re in and those managers that would do best in that environment. If we’re entering, for example, a recovery stage, we would expect a manager with a stronger earnings focus to do better than a value manager.