Quantitative fund managers, who use computer models rather than human judgment to pick stocks, have continued to suffer since the credit crisis threw their calculations into confusion last summer. They are fighting back with new models and new ideas, but are running into investor skepticism.

Managers are responding in three ways- developing extra models, looking for fresh sources of information to feed into the models, and introduction of more traditional human insight into the process.

The authors, Frank Fabozzi of the Yale School of Management, and Sergio Focardi and Caroline Jonas of the consultancy Intertek, concluded: “The relatively poor performance of many quantitative funds since 2006 has led some managers to take a fresh look at fundamental processes. The objective is to gain an informational edge by adding a fundamental insight on companies.

” It was all exposed in the summer when some leveraged investors were forced to sell out of their positions, leading to adverse effects on many similar portfolios. Sudhir Nanda, who manages about $800m in US small cap equities using a quantitative process at T Rowe Price, agrees with the authors. He says, “Too many market participants were using similar models and the same data.

” The authors of the CFA study concluded that with similar models and similar data, there was “a need to update models continuously.” Traditionally, most quant processes are based on assessment of value metrics, such as earnings information for companies. Some also incorporate technical market factors such as momentum—effectively the trajectory of a stock.

Michael O’Brien, head of European distribution at Barclays Global Investors, one of the largest quantitative managers, believes the future lies outside market-attuned black boxes. According to him “If your model uses only public information, then everyone else has the same insights. Quant managers have traditionally taken their insights from the world of academia, but in the future they will have to rely less on this. For the past year, BGI has been building a research capability that will examine fundamental factors in a systematic, quantitative way. We want to build up proprietary sources of information.”