Quant Active Fund: Identifying High-growth Stocks across Market Caps

Mar 16, 2023 / Reading Time: Approx. 10 mins

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Multi Cap Funds invest across the market cap spectrum to offer investors the benefit of diversification. During broad-based market rallies, Multi Cap Funds can potentially outperform most other categories of diversified equity mutual funds. Moreover, the large-cap component can help in offsetting the impact of volatility during uncertain and bearish market phases.

Over the long run, Multi Cap Funds can reward investors with superior gains since they have the freedom to choose from a large universe of stocks. Thus, if you are willing to take higher risk for better returns, you may consider investing in Multi Cap Funds.

 

Quant Active Fund is an agile scheme in the Multi Cap Fund category that has shown extraordinary growth in the last few years and rewarded investors with superior risk-adjusted returns.

Graph 1: Growth of Rs 10,000 if invested in Quant Active Fund 5 years ago

Quant Active Fund was launched in March 2001 by Escorts Mutual Fund. The AMC was later acquired by the Quant Group in 2018, and the scheme was renamed as Quant Active Fund. The fund has not only managed to limit the downside risk during most bearish market phases in the past, but it has also done exceptionally well during bull market phases. Quant Active Fund follows an active investment approach whereby it constantly hunts for attractive opportunities, which has helped it to generate remarkable alpha in recent years and handsomely rewarded its investors. The fund registered splendid growth in the last few years, which has brought it under the limelight. Consequently, its AUM has grown from just Rs 202 Crore as of February 2021 to Rs 3,532 crore as of February 2023. The fund’s small corpus gives it the advantage of easy liquidation and the ability to quickly shift allocation in line with dynamic market conditions. In the last five years, Quant Active Fund has registered growth at a CAGR of 19.6%, compared to a growth of 10.7% in the Nifty 500 – TRI index. An investment of Rs 10,000 in Quant Active Fund five years back would have now more than doubled to Rs 24,497.

Graph 1
Past performance is not an indicator of future returns
Data as of March 15, 2023
(Source: ACE MF)
 

Table: Quant Active Fund's performance vis-á-vis category peers

Scheme Name Corpus (Cr.) 1 Year 2 Year 3 Year 5 Year 7 Year Std Dev Sharpe
Quant Active Fund 3,532 5.19 19.08 40.00 19.61 20.22 25.89 0.32
Mahindra Manulife Multi Cap Fund 1,515 3.26 14.46 27.30 15.33 -- 22.99 0.24
Nippon India Multi Cap Fund 14,092 13.61 17.79 26.98 12.53 14.92 26.30 0.21
Baroda BNP Paribas Multi Cap Fund 1,629 1.28 11.91 24.01 11.86 14.11 22.08 0.22
ICICI Pru Multicap Fund 6,929 8.05 11.30 23.82 11.37 14.51 23.43 0.20
Sundaram Multi Cap Fund 1,795 0.31 10.43 21.69 9.51 15.04 23.09 0.19
Invesco India Multicap Fund 2,348 3.00 10.36 21.29 10.37 14.67 23.38 0.18
ITI Multi-Cap Fund 507 9.15 3.70 15.71 -- -- 22.58 0.11
NIFTY 500 - TRI 1.82 8.16 21.87 10.66 13.97 22.85 0.18
Returns are point to point and in %, calculated using the Direct Plan-Growth option. Those depicted over 1-Yr are compounded annualised.
Data as of March 15, 2023
(Source: ACE MF)
*Please note, this table only represents the best performing funds based solely on past returns and is NOT a recommendation. Mutual Fund investments are subject to market risks. Read all scheme-related documents carefully. Past performance is not an indicator for future returns. The percentage returns shown are only for indicative purposes.
 

Quant Active Fund has consistently ranked among the top performers in the Multi Cap Fund category in the past decade and has generated high alpha over the Nifty 500 - TRI index. In the last 3 years, Quant Active Fund outpaced the Nifty 500 - TRI index by an outstanding margin of 18 percentage points and also topped the category charts. Even over the longer 5-year and 7-year period, Quant Active Fund has outperformed most of its peers by a noticeable margin. The fund stands among the top quartile performers across time frames, barring the last one year period wherein it has trailed some of its peers.

Following an active investment strategy, the volatility registered by the fund is higher than the benchmark and most of its peers. Nonetheless, the remarkable returns generated by the fund have helped it score high on risk-reward parameters. The Sharpe ratio of the fund, which denotes its risk-adjusted returns, is currently the highest in the Multi Cap Fund category.

Quant Active Fund: Identifying High-growth Stocks across Market Caps
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Investment strategy of Quant Active Fund

Till early 2021, Quant Active Fund followed a dynamic investment approach to invest across market caps without any limits. However, it now follows the revised investment limits for Multi Cap Funds as defined by SEBI. Quant Active Fund has the mandate to invest at least 75% of its assets in equity and equity-related instruments investing a minimum of 25% each in large-caps, mid-caps, and small-caps. The balance 25% can be invested across market caps as per the fund manager's conviction. The fund follows a momentum-based strategy to identify attractive-looking opportunities across stocks and sectors.

Quant Active Fund selects stocks by analysing them on its proprietary VLRT framework, viz. Valuations, Liquidity, Risk, and Timing.

Here are the key features of the framework:

  • Valuation Analytics: Knowing the difference between price and value;

  • Liquidity Analytics: Understanding the flow of money across asset classes;

  • Risk Appetite Analytics: Perceiving what drives market participants to certain actions and reactions;

  • Time: Being aware of the cycles that govern how the other three dimensions interact.

This framework enables the scheme to understand the various investment trends, thereby allowing it to select high-growth potential stocks. Quant Active Fund follows an aggressive investment approach wherein it constantly looks for opportunities to generate high alpha. In other words, the fund holds many of its stocks with a short-term view, and as a result, the fund has recorded a high portfolio turnover of around 90-500% in the last two years.

Graph 2: Top portfolio holdings in Quant Active Fund

Graph 2 Graph 2
Holding in (%) as of February 28, 2023
(Source: ACE MF)
 

Quant Active Fund usually holds 55-60 stocks in its portfolio. As of February 28, 2023, Quant Active Fund held 59 stocks in the portfolio. The top 10 stocks accounted for 46.3% of its assets comprising mainly of large-cap stocks. ITC, HDFC Bank, Reliance Industries, SBI, and IRB Infrastructure Developers currently form part of the fund's top allocation. The fund's top holding witnesses frequent changes. Only a handful of stocks, such as ITC, SBI, and Linde India, have constantly found a place among the prominent contenders in the fund's portfolio.

In the last two years, Quant Active Fund benefitted the most from its holdings in Stylam Industries, Fortis Healthcare, Linde India, and ITC, while it booked profit in ICICI Bank, Sumitomo Chemical, Prestige Estates Projects, NTPC, Adani Enterprises, Cummins India, Welspun Corp, Ambuja Cements, Dr Reddy's Laboratories, Grasim Industries, Bharti Airtel, among others.

In terms of sectors, Quant Active Fund has higher exposure to Banking & Finance and Consumption, which collectively form 40.1% of its assets. It also holds significant exposure to Chemicals, Transportation, Petroleum, Infotech, Engineering, Cement, and Telecom, having allocation in the range of 3-8%, along with diversification to Auto, Textiles, Healthcare, and Metals, among others.

Suitability

Quant Active Fund has recorded stellar performance over the past years and stood strong in the Multi Cap Fund category despite the equity market witnessing sharp volatility. The fund stood strong during the 2020 market crash, wherein it outpaced the benchmark and many of its peers. Moreover, the fund topped the category returns in the ensuing bull phase, thereby generating significant alpha for its investors. Quant Active Fund is quick in its approach to shift allocation between market caps and sectors depending on the market conditions.

Though the volatility registered by Quant Active Fund is on the higher side, it has generated a higher premium for the level of risk taken. The active investment strategy of identifying multi-bagger stocks has resulted in superior returns for investors in Quant Active Fund.

The aggressive investment strategy along with significant exposure to stocks in the lower market cap makes Quant Active Fund suitable only for investors with a very high risk appetite and an investment horizon of at least 5-7 years.

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Note:  This write up is for information purpose and does not constitute any kind of investment advice or a recommendation to Buy / Hold / Sell a fund. Returns mentioned herein are in no way a guarantee or promise of future returns. As an investor, you need to pick the right fund to meet your financial goals. If you are not sure about your risk appetite, do consult your investment consultant/advisor. Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.

 

DIVYA GROVER is the co-editor for FundSelect, the flagship research service of PersonalFN. She is also the co-editor of DebtSelect. Divya is an avid reader which helps her in analysing industry trends and producing insightful articles for PersonalFN’s popular newsletter – Daily Wealth letter, read by over 1.5 lakh subscribers.

Divya joined PersonalFN in 2019 and has since then used stringent quantitative and qualitative parameters to analyse funds to provide honest and unbiased research to investors. She endeavours to enable investors to make an informed investment decision and thereby safeguard their wealth.


 

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About the Company including business activity

Quantum Information Services Private Limited (QIS) was incorporated on December 19, 1989.

QIS was promoted by Mr Ajit Dayal with an objective of providing value-based information/views on news related to equity markets, the economy in general, sector analysis, budget review and various personal products and investments options available to the Public. It was the first company to start equity research on an institutional level.

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