Robot Stock Picker Beats Human Fund Managers After Japan Quake
A fund that uses mathematical models to trade stocks and sports a beer-swilling robot as its mascot beat Japan’s best money managers last month, when an earthquake and tsunami triggered a nuclear crisis and sparked panic equities selling.
Six computer programs, making all the investment decisions for T&D Asset Management’s Kabu-Robo Fund, generated returns of 1.9 percent in March. The average actively traded fund that invests in Japan lost 6.9 percent during the month, according to Tokyo-based Rating and Investment Information Inc. The benchmark Nikkei 225 (NKY) Stock Average dropped 8.2 percent in the period.
“People tend to go with the herd when there’s a panic,” said Kazuhiro Kunisada, chief executive officer of Trade Science Corp., which designed the programs for T&D’s Kabu-Robo Fund. “Robots just follow the rules.”
About $590 billion in mutual fund assets were invested globally in quantitative strategies at the end of 2010, compared with about $3.7 trillion with managers who use fundamental analysis, according to eVestment Alliance LLC, an Atlanta-based provider of investment information and analytic technology. The category has seen 14 straight quarters of outflows, losing about $369 billion since September 2007, the data show.
Active Algonoid and five other robots trading for the Kabu- Robo Fund saw a buying opportunity when equity prices plunged following the record quake and tsunami on March 11. On March 15, when the Topix tumbled 9.5 percent to its lowest level since March 2009, Kabu-Robo’s computers bet 30 percent of the fund’s assets, or 402 million yen ($4.9 million) on companies such as JX Holdings Inc. and Cosmo Oil Co.
Sell Signals
Shares were unloaded in the next week as gains triggered sell signals, according to Masaki Kawashiro, director of sales at Trade Science. Kabu-Robo was the best performer among 393 actively managed funds that invested in Japanese stocks in March, according to Rating and Investment Information.
Kabu-Robo, which first tested its software as stocks plunged when Lehman Brothers Holdings Inc. went bankrupt, hasn’t performed as well in bull markets. The fund’s 6.6 percent gain between November and February lagged behind an 18 percent advance for the Topix, the most of any major benchmark during that period.
T&D started the fund in July 2009, giving names such as Active Algonoid and Mikazuki to trading programs that use chart analysis and moving-averages to find cheap stocks. The fund’s website has a cartoon video featuring a blue action-hero-like robot that pumps its fist and clinks beer mugs with investors in business suits.
Kabu-Robo’s programs were chosen in a software contest started in 2004 by Tokyo-based Trade Science, a unit of Monex Group Inc., the brokerage that markets the fund. Of more than 20,000 submissions from amateur and professional developers, 10 programs were picked and modified for the fund’s use.
“Humans get greedy and that’s when they make mistakes,” said Trade Science’s Kunisada. “Programs just buy when stocks fall to a certain level and sell after they rise.”
To contact the reporters on the story: Akiko Ikeda in Tokyo at iakiko@bloomberg.net; Toshiro Hasegawa in Tokyo at thasegawa6@bloomberg.net.
To contact the editor responsible for this story: John McCluskey at j.mccluskey@bloomberg.net.
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