PNC Shifts Mutual Funds to Pure Quant Model

PNC Capital Advisors is putting its large-cap mutual funds under a factor-based computer model.


PNC Capital Advisors is putting its large-cap mutual funds under the leadership of a factor-based computer model, a move reflecting the difficulty many active managers have faced in attracting investors.

Douglas Roman, managing director of PNC’s Large-Cap Equity Advantage investments, says the move to “quant” will help the firm expand its business with mainstream investors, in part because quantitative models are a less expensive way to manage portfolios. Large-Cap Equity Advantage has about $7 billion in assets, including the mutual funds, and primarily manages institutional money.

Both the popularity of factor-based investing, also known as smart beta, and the cost pressures being felt by the asset management industry, was seen in BlackRock’s announcement last week. The $5.1 trillion asset manager said it was converting some of its funds managed by stock pickers to pools run by quant models, underscoring the struggle of many active managers to beat gains produced by low-cost passive funds.

“You can’t outperform in the large-cap space by knowing something about GE – or any company – that nobody else knows. But if you focus on factors, our characteristics of stocks that have a relationship with price, you can,” said Roman, who in 2003 joined PNC from Vanguard Group, where he analyzed external active managers. Roman, who developed the factor-based models for Large-Cap Equity Advantage, said PNC will continue to have human stock pickers for the firm’s institutional strategies while retooling the mutual funds to only use quant models.

Roman believes quantitative factor-based models reduce human being’s tendency to make behavioral mistakes. Portfolio managers are prone to confirmation bias as human beings are rarely swayed by new information that goes against long-held beliefs, he said.