One reason for this, said Anna Shelley, head of Australian equities at JANA Investment Advisers, was that quantitative strategies were the first to come to market in Australia. The implemented consultant’s Australian Share Long/Short Trust was initially comprised of three quant funds until fundamental strategies arrived, after which it substituted strategies from State Street Global Advisors and Perpetual’s now-closed Quantitative Investments business for a fundamental product from BT Investment Management and a combined fundamental and quant vehicle from Tribeca. The new managers joined the quantitative Acadian Asset Management in the $56 million trust. Shelley said the move to fundamental strategies was attributed to the “development of the market” rather than a “strategic view against quant and the ability of quant to outperform going forward”.
However ongoing market volatility and macroeconomic risks would continue to undermine quants, whose funds were usually momentum-based, until a “stable, trending market can suspend their strategies,” she said. The “fear-based market,” in which valuations were “driven by sentiment rather than fundamentals like stock price revision” arose as a major headwind for quants, she said. The Goldman Sachs research found a major difference between fundamental and quantitative managers was in the way they developed market exposures. “Where quant portfolios are typically risk-controlled across stock, sector and market exposures, fundamental 130/30 funds tend to allow for greater flexibility,” the note stated, explaining that many fundamental managers allowed long exposures to be between 90–150 per cent of the portfolio and short exposure between 0–50 per cent to allow for changes in the market.
The heavily concentrated Australian equity benchmark – in which more than 65 per cent of market capitalisation was in the 20 biggest stocks, compared to less than 30 per cent in most other markets –made 130/30 funds more attractive because they could more fully exploit negative views on companies, Goldman stated. Sean Fenton, portfolio manager of Tribeca’s Alpha Plus Fund, said: “Shorting enables you to get around some of the big market-cap bias,” he said. Goldman noted there were only 8 stocks in the ASX in which long-only managers could hold an underweight greater than 3 per cent than the benchmark, limiting the extent to which they could express negative views in their portfolios.