In a column in Bloomberg News Dani Burger and Sid Verma examined quant funds. These funds are built to look for momentum in the markets and take advantage of short term fluctuations. They work well when there is high uncertainty in the financial markets. Unfortunately this year has been relatively calm and at the moment they are down money. According to Pravvit Chinawongvanich, head of derivatives strategy at Maco Risk Advisors the funds are not living up to return and diversification expectations. Three reasons for this change are: overcrowding (many firms chasing the smallest of changes); the continuing central bank stimulus which wants some growth but not too much volatility; and lows in cross-asset volatility.

The money managers continue to attract funds for over $350 billion in assets are being managed and a recent decision by Retirement System of the State of Illinois invested $100 million with KeyQuant SAS a Paris, France based company. The reason is research by AQR Capital Management going through the annual reports of the Chicago Board of Trade shows since 1880, time series momentum – having a long positioning in markets with positive returns and short positions in those with negative returns – has on average posted gains with low correlations to traditional asset classes. The Quant funds look forward to the Federal Reserve lessening so volatility in any market begins and profits can be made.

Linking to dividend paying stocks, with the markets there are all kinds of strategies, some work better in choppy markets, some work better in smooth markets, and some work best knowing how the market has performed. The reality is we do not know, but we do know the market tends to pay more for profitable companies and if they have a dividend so much the better for the investor.

There are more questions than answers, till the next time – to raising questions.