Quant equity offers investors attractive ways to harvest risk premiums at reasonable cost. But if you manage it like traditional active management -- benchmarking against the market, paying alpha fees for outperformance and dropping managers for underperformance -- you will not only miss the advantages, but likely underperform the market. You should also avoid the opposite mistake, paying more than index fund fees for funds labeled “quant equity” or related terms, that merely apply quantitative criteria to selecting stocks, without delivering calibrated exposure to recognized compensated factors.
Aaron Brown is a former managing director and head of financial market research at AQR Capital Management. He is the author of The Poker Face of Wall Street. This column was provided by Bloomberg News and does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.