Quant Hedge Funds Ride Whiplash Markets to First-Half Riches

Yahoo

04-07-2025

(Bloomberg) -- From Treasury market reversals to trade threats, the first half of 2025 was dominated by policy upheaval and Wall Street angst. The dollar famously fell, while commodities and risky assets were whipsawed. But inside the markets where the world's biggest quants operate, a funny thing happened: Time-honored trading patterns prevailed.
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Markets rewarded the strong over the weak, widening the gap between winners and losers amid a return to what AQR Capital Management's Cliff Asness has called 'basic rational investing.' That wide dispersion, as the industry calls it, proved fertile territory for systematic hedge funds, which scored some of the strongest returns so far in 2025.
Strong performers included Marshall Wace's TOPS, Renaissance Institutional Equities Fund and AQR Delphi Long-Short Equity, which all climbed about 11%, beating broader hedge-fund performance. Voleon Composition, a machine-learning hedge fund, gained 12.8%, while Two Sigma Spectrum was up 7.6%.
'Some companies are doing better than others again,' said Richard Mathieson, managing director at BlackRock, whose equity market neutral fund is up 8% this year. 'So for that process where you're taking a fresh up-to-date view in every security in the market and building it into a portfolio, the opportunity set is just a lot more compelling.'
Systematic stock strategies managed to thrive against a backdrop of rapid-fire market shocks from January through June, a stretch that saw the S&P 500 stage its biggest reversal since 2009 and commodity volatility surge to the highest in three years at one point. Treasuries lurched from their longest winning streak since 2016 in February, before succumbing to the worst weekly drop in 24 years just a little more than a month later.
These quants made money not by avoiding the upheavals, but by riding a market where stocks started moving more independently. The question now is whether that investing edge will hold, as calmer markets and resilient economic data — with Thursday's jobs report landing stronger than expected — push the S&P 500 to fresh all-time highs.
All told, 2025 is extending a renaissance for computer-driven stock traders, following the so-called quant winter — the years leading up to the pandemic when few strategies paid off beyond buy-and-hold bets on Big Tech. While their trades can vary, quants typically spread their bets more widely, and slice and dice stocks based on some quantifiable characteristics and historical patterns. That means they're more likely to win in a year like this, with less concentration in mega-caps and different shares dancing to their own beat.
For another lens into that, a strategy that bets on US single stocks being more volatile than the overall index has gained 3.5% this year, according to a Premialab index aggregating bank swap products.
In terms of commonly used factors — or quant characteristics often used to sort portfolios — momentum, which simply bets on recent winners, was up for a seventh straight quarter, according to a Bloomberg index. That's a sign that for all the market drama, the internal patterns within stocks have been far less fickle.
There are some signs that this might be starting to crack, with momentum dropping the most since March this week as investors rotated into laggards. Fading fears of an escalating trade war have revived investor appetite for risk in the past month, fueling a rotation out of so-called quality and low-risk stocks.
'There are fundamental shocks that are affecting individual securities in different ways,' said Andrea Frazzini, head of global stock selection at AQR. 'Combined with the higher volatility and dispersion we've seen, it really means that we can take more risk, we can get closer to our model and we have an easier time to implement our views.'
In stark contrast were quant trend followers that need sustained momentum to profit. The cohort, which trades futures across assets, saw their worst half-year performance since 2000, dropping 10.1% so far in 2025, a Societe Generale index shows. The Systematica Bluetrend Fund slid 17% and Man AHL Alpha fell about 7.6%, while Transtrend lost 17.5%. (The fund was impacted by positions in less mainstream markets, such as within commodities and currencies, executive director Andre Honig wrote in an email.)
The rotation out of US stocks — which saw shares outside the nation return about three times the S&P 500 — was also reflected in quant performance. Unlike in previous years, AQR's equity models have been scoring stronger returns outside the US, Frazzini added. The firm's Adaptive Equity strategy rose 15.5% in the first-half, while its Delphi trade, which favors lower-risk companies, benefited from the flight to quality earlier.
At Man Numeric, Man Group's quant equity unit, Jayendran Rajamony says other than strength in factors like momentum, it can be hard to generalize performance thanks to the growing use of idiosyncratic signals at each fund. The Man Numeric Quantitative Alpha fund was up 18.7% in the first-half.
Even with their computer-driven precision, quant programs may still need occasional human intervention, especially when policy shocks, like tariffs, fall outside the bounds of historic patterns.
'One can argue that some very bold new policy thinking simply cannot be captured,' Rajamony said. 'Intervention as a form of managing risk I think is needed to make sure these portfolios navigate an environment like this.'
Representatives for Marshall Wace, Renaissance Technologies, Voleon, Two Sigma and Systematica declined to comment.
--With assistance from Lu Wang.
(Updates table with additional funds. Previous version corrected the full name of Voleon's fund in third paragraph and table.)
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