Quant Small Cap Fund: Registering Category-topping Returns Across Time Frames

Quant Small Cap Fund is a momentum-driven scheme in the Small Cap Fund category that has recorded extraordinary performance over the last few years and has registered category-topping returns across time frames.

Incepted in October 1996, Quant Small Cap Fund is a momentum-driven scheme in the Small Cap Mutual Fund category that follows aggressive investment strategies. The fund was originally launched as a debt-oriented fund under which it invested predominantly in fixed-income and money market instruments with up to 25% allocation in equities. It was later categorised as a Small Cap Fund in 2018 after the Quant Group took over the sponsorship of the AMC from Escorts Mutual Fund.

Quant Small Cap Fund follows an active investment approach whereby it constantly hunts for attractive opportunities, which makes it sector and benchmark agnostic. The fund has performed remarkably well under its current mandate particularly since 2020, which helped it handsomely rewarded its investors. The fund's higher exposure to certain sectors such as Engineering, Infrastructure, and Consumption, proved to be extremely rewarding in the last couple of years. Consequently, its AUM has shown a commendable growth from Rs 1,712 crore as of June 2022 to Rs 22,967 crore as of June 2024.

In the last five years, Quant Small Cap Fund has registered returns at a CAGR of 46.8%, which surpasses its peers by a broad margin. The benchmark Nifty Smallcap 250 - TRI grew 31.1% during this period. An investment of Rs 10,000 in Quant Small Cap Fund would have now grown to a whopping Rs 68,416 compared to a valuation of Rs 38,753 in its benchmark.

Quant Small Cap Fund has registered extraordinary performance over the last few years and handsomely rewarded its investors. In the last 3-year period, Quant Small Cap Fund has outpaced the benchmark by a remarkable margin of nearly 12 percentage points and also stood as the category topper. Its superior performance in recent years has boosted its long-term returns. Even the short-term performance of the fund outpaces that of the benchmark and its peers by a noteworthy margin. The fund has now found a place among top-performing schemes, boasting superior returns across time frames.

The volatility registered by the fund is higher than the category average as well as the benchmark. However, Quant Small Cap Fund has managed to reward investors remarkably for the level of risk taken. Its Sharpe ratio, a measure of risk-adjusted return, is currently much ahead of the benchmark and has outperformed the category average but trails some of its prominent peers.

[Read: Small Cap Index Near an All-time High: Should You Rejoice or Worry?]

What is the investment strategy of Quant Small Cap Fund?

Categorised as a Small Cap Fund, Quant Small Cap Fund is mandated to invest a minimum of 65% of its assets in stocks of small-cap companies, i.e., companies ranking 251st onwards in terms of market capitalisation. The fund also allocates around 20-30% of its assets in stocks of large-cap and mid-cap companies. Quant Small Cap Fund adopts a quantitative approach to select high-growth potential stocks based on the relevant market, industry, sector and economic parameters. This quantitative approach is based on the fund house's 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. The fund holds many of its stocks with a short-term view, and as a result, Quant Small Cap Fund usually recorded a high turnover of 100-500% in the past.

Quant Small Cap Fund usually holds a well-diversified portfolio of about 90 stocks at any point in time. As of June 30, 2024, the fund held 91 stocks in its portfolio, with the top 10 stock holdings accounting for around 46% of its assets. Large-cap stocks such as Reliance Industries, HDFC Bank, Jio Financial Services, and Adani Power currently form the fund's top holdings followed by small-cap and mid-cap names such as Aegis Logistics, Bikaji Foods International, IRB Infrastructure Developers, and HUDCO among others. While Quant Small Cap Fund does not hesitate from holding unconventional bets, it has restriction allocation in each small cap stock to 5% or less.

In the last two years, Quant Small Cap Fund benefitted the most from its holdings in Anand Rathi Wealth, IRB Infrastructure Developers, Arvind, Aegis Logistics, Man InfraConstruction, HFCL, Just Dial, Garware Hi-Tech Films, EID - Parry (India), among others. It booked profits in ITC, Hindustan Copper, The Indian Cements, Century Textiles & Industries, Marksans Pharma, KSB, Sun Pharma Advanced Research Company, Neuland Laboratories, Rites, Aurobindo Pharma, Jindal Steel & Power, GAIL (India), among others.

The top 5 sectors in Quant Small Cap Fund's portfolio accounted for around 52% of its assets. Its portfolio is skewed towards Banking & Finance, closely followed by Petroleum, Engineering, and Transportation. It also holds significant exposure to Consumption, Construction, Pharma, Telecom, and Power, among others.

Is Quant Small Cap Fund suitable for my investment goals and risk tolerance?

Quant Small Cap 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 ongoing bull phase, thereby generating significant alpha for its investors. Quant Small Cap Fund is quick in its approach to shift allocation between market caps and sectors depending on the market conditions which gives it the opportunity to identify high alpha bets.

With significant exposure to stocks in the small-cap and mid-cap segments coupled with the active investment approach followed by the scheme, the volatility registered is higher than the benchmark and many of its peers. Nonetheless, the remarkable returns generated by the fund have helped it score high on risk-reward parameters.

The aggressive investment mandate followed by Quant Small Cap Fund makes it suitable only for investors with a very high risk appetite and an investment horizon of at least 7-10 years.

Watch this video to check out the best Small Cap Funds of 2024:

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. Registration granted by SEBI, Membership of BASL and certification from NISM no way guarantee performance of the intermediary or provide any assurance of returns to investors.

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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.

Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing.
This article is for information purposes only and is not meant to influence your investment decisions. It should not be treated as a mutual fund recommendation or advice to make an investment decision in the above-mentioned schemes.

DISCLOSURE AS PER SECURITIES AND EXCHANGE BOARD OF INDIA (RESEARCH ANALYSTS) REGULATIONS, 2014

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.

'PersonalFN' is a service brand of QIS and was started in the year 1999. In 1999, the Company registered the Domain name www.personalfn.com for providing information on mutual funds and personal financial planning, financial markets in general, etc. and services related to financial planning and research in various financial instruments including mutual funds, insurance and fixed income products to customers. It offers asset allocation and researched investment recommendations through its financial planning services.

Quantum Information Services Private Limited (QIS) is registered as Investment Adviser under SEBI (Investment Adviser) Regulations, 2013 and having Registration No.: INA000000680. In terms of the second proviso to Regulation 3 (1) of SEBI (Research Analysts) Regulations, 2014 the Company is not required to obtain Certificate of registration from SEBI.

Disciplinary history

There are no outstanding litigations against the Company, its subsidiaries and its Directors.

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Details of associates

• Group Companies including:

  1. Money Simplified Services Private Limited;

  2. PersonalFN Insurance Services India Private Limited;

  3. Equitymaster Agora Research Private Limited;

  4. Common Sense Living Private Limited;

  5. Quantum Advisors Private Limited;

  6. Quantum Asset Management Company Private Limited;

  7. HelpYourNGO.com India Private Limited;

  8. HelpYourNGO Foundation;

  9. Natural Streets for Performing Arts Foundation;

  10. Primary Real Estate Advisors Private Limited;

  11. HYNGO India Private Limited;

• Directors of the Company - Suresh Lulla; I V Subramaniam, Murali Ananthan Krishnan and Rafiq Dossani

1. ‘subject company’ is a scheme on which a buy/sell/hold view or target price is given/changed in this Research Report;

2. Neither QIS, it's Associates, Research Analyst or his/her relative have any financial interest in the subject Company; except for one of the Research Analysts holding units of Quant Small Cap Fund;

3. Neither QIS, it's Associates, Research Analyst or his/her relative have actual/beneficial ownership of one per cent or more securities of the subject Company, at the end of the month immediately preceding the date of publication of the research report;

4. Neither QIS, it's Associates, Research Analyst or his/her relative has any other material conflict of interest at the time of publication of the research report except that QIS (PersonalFN) is, as per SEBI (Mutual Funds) Regulations 1996, an associate / group Company of Quantum Asset Management Company Private Limited and Trustees and Sponsor of Quantum Mutual Fund (QMF) and to that extent there may be conflict of interest while recommending any schemes of QMF. However, any such recommendation or reference made is based on the standard evaluation and selection process, which applies uniformly for all Mutual Fund Schemes. The payment of commission (upfront / annualized & trail), if any, for any Schemes by QMF to QIS (PersonalFN) is also at arm's length and as per prevailing market practices.

1. Neither QIS nor it's Associates have received any compensation from the subject Company in the past twelve months;

2. Neither QIS nor it's Associates have managed or co-managed public offering of securities for the subject Company;

3. Neither QIS nor it's Associates have received any compensation for investment banking or merchant banking or brokerage services from the subject Company;

4. Neither QIS nor it's Associates have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past twelve months.

5. Neither QIS nor it's Associates have received any compensation or other benefits from the subject Company or third party in connection with the research report

1. The Research Analyst has not served as an officer, director or employee of the subject Company.

2. QIS or the Research Analyst has not been engaged in market making activity for the subject Company.

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Quantum Information Services Private Limited CIN: U65990MH1989PTC054667 Regd. & Corp. Office: 103, Regent Chambers, 1st Floor, Nariman Point, Mumbai - 400 021

Email:info@personalfn.com Website: www.personalfn.com Tel.: 022 61361200 Fax.: 022 61361222 SEBI-registered Investment Adviser. Registration No. INA000000680, SEBI (Investment Advisers) Regulation, 2013

Investment in securities market are subject to market risks, read all scheme related documents carefully.