Computer-driven investment firms are increasingly trading over-the-counter US stocks, attempting to bring modern algorithmic strategies to a realm traditionally seen as one of the riskiest corners of equity investing.
So-called quant hedge funds and proprietary traders are being drawn towards this corner of the market by a combination of improved liquidity and the increasing difficulty they face making money in the large-cap markets they have previously focus on, say investors, market makers and exchange executives.
“It’s sort of at the sweet spot of what an investor like us thinks we can do,” said Seth Weingram, senior vice-president at Acadian Asset Management, which specialises in systematic strategies and runs a microcap strategy that includes OTC stocks. “It’s the least efficient part of the equity universe, and we are really interested in less efficient market segments.”