To err is human, which is why we have quants, as anyone from the University of Chicago will readily attest.
When it comes to currency funds, however, and specifically absolute return currency funds, a little id goes a long way, at least according to Axel Merk (left).
The president and chief investment officer of Palo Alto, Calif.-based Merk Investments notes that quant strategies are great, until policymakers “change the rules.” It’s a risk that plays particular havoc in the currency space.
Which is the reason he’s introduced an active, human element into the Merk Absolute Return Currency Fund (MABFX).
It’s done in a systematic manner, Merk is quick to note, and all of the fund’s risk layers are still quant driven, “it’s just that the models have been demoted.”
“We used to take a common sense look at the models and if we all felt okay with them we’d go with it,” he translates. “Now, if someone has an idea we feel will perform better than the model given what the risk profile would otherwise be, we will do it.”
By adding the human judgment dynamic, the absolute return currency fund is now “far more tactical.”