Leaving PIMCO.com

You are now leaving the PIMCO website.

Skip to Main Content
Economic and Market Commentary

Decoding Quant Strategies

Explore PIMCO's approach to quantitative investment strategies at our recent Alternatives Investor Conference.

Text on screen: PIMCO

Text on screen: PIMCO provides services only to qualified institutions and investors. This is not an offer to any person in any jurisdiction where unlawful or unauthorized

Text on screen: What is PIMCO’s approach to quant investing?

Images on screen: Nick Granger and Matt Dorsten presenting at the alts conference

Text on screen: Nick Granger, Portfolio Manager, Quantitative Analytics

Nick Granger: We kind of use quant investing and systematic investing synonymously, that what they really mean is using various fundamental statistical techniques alongside technology -- to identify repeatable inefficiencies in markets, be that through risk premia, investor asymmetries, repeatable patterns that occur for various reasons, use research to identify these features of markets and then build systems to trade and exploit these in a systematic and often automated way. So really the key difference between our systematic approach and a more familiar discretionary approach is we're effectively delegating the day-to-day decision-making of which trades to do to a computer to a sort of pre-set predefined set of rules. And this is very powerful in a number of ways. Firstly, there's a lot of alpha out there that you can only really -- the type of alpha where there's a small but repeatable edge that really lends itself to being captured by these techniques. It's just not feasible for human traders to do thousands and thousands of trades a day and make sure each of those is kind of sized and executed appropriately. Quant strategies are very good at doing this. I think the other interesting thing about this is it seeks to remove biases from the investment process. So we're not finding ourselves scrambling to decide what to do when volatility picks up or there's some market event.

Text on screen: What should investors be aware of when considering quant strategies?

Images on screen: Nick Granger and Matt Dorsten presenting at the alts conference

Text on screen: Matt Dorsten, Portfolio Manager, Quantitative Analytics

Matt Dorsten: Expectations are very important. Most people are looking at quant for something that's different and diversifying, and sometimes that can be more challenging to hold onto when you're realizing some of the diversifying behavior. Trend following is kind of the most extreme example of this type of behavior.

The thing that people need to think about is that trend following, like any strategy, has its own drawdowns and those tend to not be coincident with equity drawdowns. So you'll have situations where your quant strategies or trend following are kind of having a tough period, having a drawdown in isolation and nothing else is really happening in the world, quote unquote. And people are like what's going on here? And at times that can be very hard for investors to hold onto. But I think you have to have the right perspective going into this that if you're looking for something different and diversifying, you have to understand what that means. And what that means is that it's going to have unusual behavior at times.

Text on screen: How has quant investing changed?

Images on screen: Nick Granger and Matt Dorsten presenting at the alts conference

Nick Granger: So those of us running trend strategies in the decade from sort of 2010 to 2020 found certainly in developed markets, it was quite difficult to generate performance not just through trends, but through some other quant macro strategies that you very much had a dynamic where DM countries were very correlated. Central banks were kind of stamping on trends in either direction as they started to emerge by sort of talking up or down support. And that dynamic was quite difficult for quant. That's really gone away and especially more recently as inflation has come to the focal and you've seen much more diversification and distinguishability amongst even DM markets that you didn't see before. So the various value type strategies that we look at have become much more meaningful. There's much more for them to kind of bite onto in terms of differences between countries. And that's really come out over the last couple of years that we've seen sort of strong performance and interesting things going on in these sort of value models.

Text on screen: What are some of the new research frontiers PIMCO’s quant team is exploring?

Images on screen: Nick Granger and Matt Dorsten presenting at the alts conference

Matt Dorsten: So we've definitely been focusing a lot on adding new markets to our strategies in general, trend following in particular.

We've also expanded into inflation swaps in the U.S. and in Europe and some else other countries as well. We've also kind of expanded beyond that to inflation-linked bonds and you can get a wide variety of exposure doing that and that's something that you need to be able to finance the bonds in order to short them. It's something that you really need to have the infrastructure set up to do that, which we do.

Nick Granger: One of the really exciting areas we've been putting a lot of work into is systematic credit.

I think credit is also very interesting because it just sort of has more dimensions than most other asset classes to look at. Within credit, we’re really thinking about predictability at the issuer level, you can look across the curve, across the capital structure, think of how things change across ratings, how different covenants affect different bonds.

So there's just a wealth of data for quants to get their teeth into. And we've been doing a lot of interesting work building out a as of systematic credit trading capability.

Text on screen: For more insights and information, visit pimco.com

Text on screen: PIMCO

DISCLOSURE


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 his/her ability to invest for a long-term especially during periods of downturn in the market. No representation is being made that any account, product, or strategy will or is likely to achieve profits, losses, or results similar to those shown.

Statements concerning financial market trends or portfolio strategies are based on current market conditions, which will fluctuate. 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 for the long term, especially during periods of downturn in the market. Outlook and strategies are subject to change without notice.

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.

PIMCO as a general matter provides services to qualified institutions, financial intermediaries and institutional investors. Individual investors should contact their own financial professional to determine the most appropriate investment options for their financial situation. This is not an offer to any person in any jurisdiction where unlawful or unauthorized. | Pacific Investment Management Company LLC, 650 Newport Center Drive, Newport Beach, CA 92660 is regulated by the United States Securities and Exchange Commission. [| PIMCO Europe Ltd (Company No. 2604517, 11 Baker Street, London W1U 3AH, United Kingdom) is authorised and regulated by the Financial Conduct Authority (FCA) (12 Endeavour Square, London E20 1JN) in the UK. The services provided by PIMCO Europe Ltd are not available to retail investors, who should not rely on this communication but contact their financial adviser. | PIMCO Europe GmbH (Company No. 192083, Seidlstr. 24-24a, 80335 Munich, Germany), PIMCO Europe GmbH Italian Branch (Company No. 10005170963, Corso Vittorio Emanuele II, 37/Piano 5, 20122 Milano, Italy), PIMCO Europe GmbH Irish Branch (Company No. 909462, 57B Harcourt Street Dublin D02 F721, Ireland), PIMCO Europe GmbH UK Branch (Company No. FC037712, 11 Baker Street, London W1U 3AH, UK), PIMCO Europe GmbH Spanish Branch (N.I.F. W2765338E, Paseo de la Castellana 43, Oficina 05-111, 28046 Madrid, Spain) and PIMCO Europe GmbH French Branch (Company No. 918745621 R.C.S. Paris, 50–52 Boulevard Haussmann, 75009 Paris, France) are authorised and regulated by the German Federal Financial Supervisory Authority (BaFin) (Marie- Curie-Str. 24-28, 60439 Frankfurt am Main) in Germany in accordance with Section 15 of the German Securities Institutions Act (WpIG). The Italian Branch, Irish Branch, UK Branch, Spanish Branch and French Branch are additionally supervised by: (1) Italian Branch: the Commissione Nazionale per le Società e la Borsa (CONSOB) (Giovanni Battista Martini, 3 - 00198 Rome) in accordance with Article 27 of the Italian Consolidated Financial Act; (2) Irish Branch: the Central Bank of Ireland (New Wapping Street, North Wall Quay, Dublin 1 D01 F7X3) in accordance with Regulation 43 of the European Union (Markets in Financial Instruments) Regulations 2017, as amended; (3) UK Branch: the Financial Conduct Authority (FCA) (12 Endeavour Square, London E20 1JN); (4) Spanish Branch: the Comisión Nacional del Mercado de Valores (CNMV) (Edison, 4, 28006 Madrid) in accordance with obligations stipulated in articles 168 and 203 to 224, as well as obligations contained in Tile V, Section I of the Law on the Securities Market (LSM) and in articles 111, 114 and 117 of Royal Decree 217/2008, respectively and (5) French Branch: ACPR/Banque de France (4 Place de Budapest, CS 92459, 75436 Paris Cedex 09) in accordance with Art. 35 of Directive 2014/65/EU on markets in financial instruments and under the surveillance of ACPR and AMF. The services provided by PIMCO Europe GmbH are available only to professional clients as defined in Section 67 para. 2 German Securities Trading Act (WpHG). They are not available to individual investors, who should not rely on this communication. | PIMCO (Schweiz) GmbH (registered in Switzerland, Company No. CH-020.4.038.582-2, Brandschenkestrasse 41 Zurich 8002, Switzerland). The services provided by PIMCO (Schweiz) GmbH are not available to retail investors, who should not rely on this communication but contact their financial adviser. | PIMCO Asia Pte Ltd (8 Marina View, #30-01, Asia Square Tower 1, Singapore 018960, Registration No. 199804652K) is regulated by the Monetary Authority of Singapore as a holder of a capital markets services licence and an exempt financial adviser. The asset management services and investment products are not available to persons where provision of such services and products is unauthorised. | PIMCO Asia Limited (Suite 2201, 22nd Floor, Two International Finance Centre, No. 8 Finance Street, Central, Hong Kong) is licensed by the Securities and Futures Commission for Types 1, 4 and 9 regulated activities under the Securities and Futures Ordinance. PIMCO Asia Limited is registered as a cross-border discretionary investment manager with the Financial Supervisory Commission of Korea (Registration No. 08-02-307). The asset management services and investment products are not available to persons where provision of such services and products is unauthorised. | PIMCO Investment Management (Shanghai) Limited. Office address: Suite 7204, Shanghai Tower, 479 Lujiazui Ring Road, Pudong, Shanghai 200120, China (Unified social credit code: 91310115MA1K41MU72) is registered with Asset Management Association of China as Private Fund Manager (Registration No. P1071502, Type: Other). | PIMCO Australia Pty Ltd ABN 54 084 280 508, AFSL 246862. This publication has been prepared without taking into account the objectives, financial situation or needs of investors. Before making an investment decision, investors should obtain professional advice and consider whether the information contained herein is appropriate having regard to their objectives, financial situation and needs. To the extent it involves Pacific Investment Management Co LLC (PIMCO LLC) providing financial services to wholesale clients, PIMCO LLC is exempt from the requirement to hold an Australian financial services licence in respect of financial services provided to wholesale clients in Australia. PIMCO LLC is regulated by the Securities and Exchange Commission under US laws, which differ from Australian laws. | PIMCO Japan Ltd, Financial Instruments Business Registration Number is Director of Kanto Local Finance Bureau (Financial Instruments Firm) No. 382. PIMCO Japan Ltd is a member of Japan Investment Advisers Association, The Investment Trusts Association, Japan and Type II Financial Instruments Firms Association. All investments contain risk. There is no guarantee that the principal amount of the investment will be preserved, or that a certain return will be realized; the investment could suffer a loss. All profits and losses incur to the investor. The amounts, maximum amounts and calculation methodologies of each type of fee and expense and their total amounts will vary depending on the investment strategy, the status of investment performance, period of management and outstanding balance of assets and thus such fees and expenses cannot be set forth herein. | PIMCO Taiwan Limited is an independently operated and managed company. The reference number of business license of the company approved by the competent authority is (112) Jin Guan Tou Gu Xin Zi No. 015 . The registered address of the company is 40F., No.68, Sec. 5, Zhongxiao East Rd., Xinyi District, Taipei City 110, Taiwan (R.O.C.), and the telephone number is +886 2 8729-5500. | PIMCO Canada Corp. (199 Bay Street, Suite 2050, Commerce Court Station, P.O. Box 363, Toronto, ON, M5L 1G2) services and products may only be available in certain provinces or territories of Canada and only through dealers authorized for that purpose. | No part of this publication may be reproduced in any form, or referred to in any other publication, without express written permission. PIMCO is a trademark of Allianz Asset Management of America LLC in the United States and throughout the world. ©2023, PIMCO.

For institutional investor use only; not for further distribution

CMR2023-1031-3198888

Featured Participants

Select Your Location

Americas

Asia Pacific

Europe, Middle East & Africa

  • The flag of Europe Europe
  • The flag of France France
  • The flag of Spain Spain
Back to top