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Fund Spy

When Quant Funds Failed

How computerized investing stumbled in the crisis and after.

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The ups and downs of stocks since the credit crisis began roiling the equity markets in 2007 haven't been kind to most stock-fund managers. But those who use quantitative stock-picking models have had an especially difficult time. In this article, the first of two on quant funds, we'll look at what went wrong.

The carnage has been widespread. For example, seven of Bridgeway's eight actively managed funds that rely exclusively on quant models land in the bottom third of their Morningstar categories over three years through July 28, 2010. The same is true of six of Goldman Sachs' eight quant funds with three-year records. JP Morgan has a lineup of eight Intrepid brand quant funds, and each has lagged its typical category peer over the past three years. Vanguard's quant group has struggled, as has AXA Rosenberg--its four Laudus funds will soon be liquidated. (This is due in part to a controversy over an error in one of its models that went unreported for more than a year; founder Barr Rosenberg and head of research Thomas Mead are departing the firm.) On average, a group of 65 quant funds that we've looked at have trailed three fourths of their peers over three years through July 28.

Greg Carlson does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.