This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Quant Mutual Funds Top the Benchmarks

NEW YORK (TheStreet) -- Many quantitative mutual funds delivered winning returns in the past year. The funds use computerized models to pick stocks, and lately the models have been on target. Funds that outpaced their benchmarks by wide margins include Bogle Small Cap Growth (BOGLX) and Bridgeway Aggressive Investors (BRAGX).

The strong performance represents a big change from what occurred in the meltdown of 2008, when many quant funds lagged badly. During the turmoil, portfolio managers said that their systems failed because panicked markets did not distinguish between promising stocks and those with unattractive characteristics. The managers assured shareholders that the funds would revive when markets calmed.

Now that the panic selling has abated, the quant systems seem to be functioning better. "Our funds tend to do well in environments where investors are thinking in disciplined ways," says John Ameriks, a principal at Vanguard who oversees the company's quantitative funds.

Some of the best showings have come from small-cap funds. Quant funds that have topped the benchmarks include Fidelity Small-Cap Enhanced Index (FCPEX), TFS Small-Cap (TFSSX) and Vanguard Strategic Small-Cap Equity (VSTCX).

Famous for its index funds, Vanguard has enjoyed notable success with its actively managed quantitative funds. During the past five years, Vanguard Strategic Small-Cap returned 22.4% annually, topping 75% of small blend peers and outdoing iShares Russell 2000 ETF (IWM) by a percentage point, according to Morningstar. Besides overseeing the small-cap fund, the Vanguard managers use their quantitative models to run Vanguard Strategic Equity (VSEQX), which has outdone 82% of its mid-cap blend peers in the past five years.

Holding about 400 stocks, the Vanguard small-cap fund aims to outdo its benchmark, the MSCI US Small-Cap 1750 Index. The quant model emphasizes undervalued companies with the potential to deliver future earnings growth. The system favors stocks with healthy balance sheets and consistent cash flows.

The current portfolio holdings have an average price-to-earnings ratio of 21, compared to 29 for the benchmark. The holdings have been increasing earnings at a 14% rate, compared to 10% for the benchmark. To limit the risk of underperforming, the managers keep many of the portfolio's characteristics roughly in line with the benchmark. The sector weightings are close to the figures for the index.

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 17,098.45 +18.88 0.11%
S&P 500 2,003.37 +6.63 0.33%
NASDAQ 4,580.2710 +22.5760 0.50%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs