Quant Mutual Fund says it follows a valuation, liquidity, risk and timing strategy, which in practice has translated into a high turnover ratio
With a 206% return over the past year, Quant Small Cap Fund was the top performer among all equity mutual funds in India in this period. The fund as well as the fund house itself are not well known among India’s mutual fund investors and distributors and hence understanding its past is important for potential investors. Quant Small Cap Fund was not always a high performer, severely lagging its benchmark and peers in 2019 and putting up an inconsistent performance in earlier years. The fund house itself changed hands in 2018, making the past returns less significant. The new management also made major changes to the investment process and personnel. Mint explains.
What was once Escorts Mutual Fund became Quant Mutual Fund following a buyout of the asset management company by Quant Capital, a broking and mutual fund distribution in 2018. Headed by Sandeep Tandon, Quant Capital was earlier a part of the Anil Ambani owned Reliance Securities. Escorts MF had assets under management (AUM) of ₹235 crore at the time of acquisition. Powered by recent performance, that AUM has soared to ₹1,855 crore according to its national sales head with the fund house adding assets of around ₹600 crore- ₹700 crore in the past month alone.
Quant Mutual Fund says it follows a ‘VLRT’ strategy, analyzing valuation, liquidity, risk and timing. In practice that has translated into a high turnover ratio (a high churn in the portfolio with stocks frequently bought and sold). "If you see the portfolios of the Quant schemes, you will observe an extremely high portfolio turnover ratio, sometimes in the order of 500-600%. This indicates that the schemes are being churned more often, characterized by opportunistic bets rather than a clear underlying strategy. The small size also makes them vulnerable to any large outflows. For both these reasons, they have not entered our investment radar thus far," said Vidya Bala, co-founder, Prime Investor. However, the fund house sees the churn as inherent to its strategy. "We give 2/3rd weightage to liquidity analytics and risk appetite (risk on or risk off) and 1/3rd to valuations. Our portfolios have a high turnover ratio for this reason but it is also the reason for our high returns," said Anupam Saxena, National Sales Head, Quant Mutual Fund. Quant Tax Plan, another scheme managed by the fund house, has also put up a strong performance of 131.5% beating benchmark and category. Stocks such as Fortis Healthcare and Stylam Industries occupy large shares in the portfolios of both schemes, but given the high turnover strategy used by the fund house, there may not be much significance in the individual holdings.
“Coming to India, the Quant greed indicator has touched its January 2008 top for the 30 most admired stocks, a significant portion of the Indian equity market. Additionally, our risk appetite and liquidity indicators for India are showing minor weaknesses. Hence, we tread a cautious line in the near term and believe that a buy on dips strategy will remain effective from both a medium-term and long-term standpoint," says the outlook note on the AMC’s website for May 2021. “At present we are in risk off mode, with a large part of our schemes in cash and we've moved into defensive stocks such as pharma rather than cyclicals," Saxena added. Investors rushing to invest looking at recent returns should take into account the AMC’s strategy and approach.