The founder and investment director of Investors Mutual Limited, Anton Tagliaferro, has criticised “quant-type” funds that dip in and out of the market and indicated that their only saving grace is that they present buying opportunities for investors.
Speaking at a media event to launch the partnership of IML with US-based active manager Loomis, Sayles and Company yesterday, Tagliaferro gave a frank assessment of the quantitative style of investing, which typically uses complex mathematical models to identify investment opportunities.
“[After] the advent of quant funds the market has become very short-term focused,” Tagliaferro said.
The effect of having multiple fund managers hunting for minute indicators of change creates artificial waves of change to stock prices, he continued.
“You see this all the time now; a stock misses earnings by one or two per cent, then you see a stock move of ten, fifteen or twenty per cent at times.
“It’s nonsense, quite frankly,” Tagliaferro said. “They all get fed the same thing.”
If you think about it mathematically, he explained, small changes in earnings “don’t really alter the value of a company”.
“It changes the value of the stock price, which is a vastly different thing.”
Loomis Sayles chief executive Kevin Charleston agreed, saying that the herd mentality in quantitative investing means it isn’t as smart as it looks.
“Nobody successfully makes money for clients investing on a consensus view, that’s not how it works,” Charleston said. “Ultimately, you have to go against the grain, which means there are going to be periods when you’re not going to look very smart.”
IML is a boutique Australian equities manager, founded by Tagliaferro in 1998. IML and Loomis Sayles are linked by their parent company, Natixis Investment Managers.
Tagliaferro believes the amount of people investing on a three to five-year basis are in the minority.
“It’s all about short-term momentum,” he said. “To me it’s just a bit of nonsense, really.”
“But that itself creates opportunities,” he noted.