It’s a Quant’s stock market as computer programs keep on buying

At least, that’s the picture emerging from a growing divergence between quantitative funds and discretionary managers. Systematic strategies have barely budged from near- record participation in U.S. stocks. Meanwhile, fundamental equity long-short managers can’t afford to be anything but picky, considering the market’s narrow leadership. The result: the largest gap on record between humans’ and computers’ gross exposure to U.S. equities, data compiled by Credit Suisse Group AG show. For now, systematic traders are the dominating force in markets.

“This is the largest footprint for quants. It’s a function of allocation and leverage,” Mark Connors, global head of risk advisory at Credit Suisse Group, said. “The reason why that’s important is that they’re not going away. Complexity isn’t going to be rolled back.”
In a sense, the divergence reflects the growing popularity of quant methods over traditional strategies. Nailing down the exact size of the quantitative space is nearly impossible, though some estimates are as high as $500 billion. What’s more certain is that it’s getting bigger. Quant is the fastest growing category on both Credit Suisse’s prime brokerage platform and the broader universe.

Passive and quantitative investors now account for about 60 percent of all equity assets, compared with 30 percent a decade ago, according to data from JP Morgan Chase & Co. The firm estimates that only 10 percent of trading volume now comes from discretionary investors.

Source: Bloomberg pro terminal

Trader Nikolay Georgiev

Read more:

• Fake news isn’t just a problem for the public, it’s a problem for algos
• Jim Cramer: “It was all about the rise of the machines.”
• RISE OF THE MACHINES or why automated trading could create problems down the line
• JP. Morgan: The next financial crisis will be Flash Crash
• Robo-adviser Scalable Capital hits $1.2 billion