Pursue Diversification and Return with PIMCO’s Quant Strategies
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Text on screen: What is quantitative investing?
Nick: Quant investing involves detecting persistent patterns and
Text on screen: Nick Granger, Portfolio Manager, Quantitative Analytics
behavioral anomalies in financial markets that can be exploited through systematic, often automated strategies. The effects these strategies are built on are underpinned by rigorous research, rooted in financial theory and statistical techniques.
Quant strategies are based around rules that not only identify the effect, but also specify the trading rules in advance, aiming to remove predictable human biases from the investment process.
One of the main differences between quant and discretionary strategies is that discretionary traders tend to think in terms of individual trades, which are typically high conviction, but relatively few in number.
Text on screen: TITLE – The power of quantitative investing, BULLETS – Increased scale and diversification SUB-BULLETS – Ability to deploy a large number of trades, Extract and exploit small statistical edges, BULLETS – Potential for near-instantaneous response to new information, Flexibility to leverage both automated and manual trading
the power of quant is in its much greater capacity for scale and diversification. Quant strategies typically deploy a much larger number of trades, often using automation, to trade hundreds or even thousands of individual assets,
In particular, this gives the ability to extract small statistical edges that may be very difficult for more discretionary or manual processes to exploit..
Systematic trading doesn't always have to mean fully automated. Some processes, particularly higher frequency strategies in more liquid markets, can be fully automated, taking humans totally out of the loop.
This means strategies can respond almost instantaneously to new information and dynamically size positions in real time.
Other strategies will have trades generated in the same systematic way, but may rely on human traders where we have evidence that this route offers better execution, or where markets are still voice traded.
And finally some strategies will have a more hybrid approach, where the core signal generation remains broadly systematic. But the execution process allows for some flexibility for traders to feed back liquidity information and access back to the strategy.
In all cases, quant investing is a relatively resource intensive approach to investing, and it benefits from economies of scale.
Text on screen: Quants rely on research, execution and infrastructure to improve strategies over time
Images on screen: PIMCO trade floor
Quants rely on vast amounts of research, execution, and infrastructure, to develop, execute, and improve strategies over time.
Text on screen: How can PIMCO’s approach benefit investors?
At PIMCO we're focused on expanding our team of dedicated quant PMs, but also on ensuring there is close and ongoing collaboration between the quant PMs and the vast global resources available at PIMCO. For example, our 17 dedicated quant PMs work closely with a broader group of over 300 portfolio managers focused on individual markets, and 70 plus dedicated portfolio analytics team that conducts quantitative research for the broader firm.
Text on screen: PIMCO’s deep resources allow the quant team to build differentiated strategies
Images on screen: PIMCO trade floor
These resources give PIMCO's quant PM team the ability to reach deeply into the areas of expertise covered by the firm's broader resources, and build differentiated strategies in areas such as credit, commodities, and interest rates.
PIMCO's been trading asset classes like credit, and mortgages, and swaps, for decades. And by working with our specialists, we can gain a truly nuanced understanding of how to build and manage models across these asset classes.
We're able to design strategies with specific characteristics, such as emphasizing defensiveness or positive skewness, or controlling the betas to equities and other major risk factors. For example, trend following strategies are naturally defensive, for well-understood fundamental reasons, with positive skewness and negative equity correlations in bear markets. This can be useful for investors seeking diversification within broader portfolios.
Other strategies may exhibit more short volatility profiles or contain truly idiosyncratic risk, allowing PMs to blend together content to produce diversified portfolios of strategies.
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Ultimately, quant investing requires significant research in advance, and can offer investors diversified sources of risk and return that can be valuable across their portfolios.
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Disclosure
Quantitative models evaluate securities or securities markets based on certain assumptions concerning the interplay of market factors. Models used may not adequately take into account certain factors, may not perform as intended, and may result in a decline in the value of your investment, which could be substantial. All investments contain risk and may lose value. Diversification does not ensure against loss.
There is no guarantee that these investment strategies will work under all market conditions or are appropriate for all investors and each investor should evaluate their ability to invest long-term, especially during periods of downturn in the market.
This material contains the opinions of the manager and such opinions are subject to change without notice. This material has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.
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