This Little-Known Mutual Fund Has Beaten Everyone for Two Years in a Row
Returning 93.78% in 2021, Quant Small Cap Fund topped the performance charts that year. It’s easy to consider this a fluke, but the program was also the best for 2020 with a mind-blowing 76% return. In fact, 7 of Quant Mutual Fund’s 14 plans outperformed their respective categories in the past year, including Quant Tax Plan, Quant Active Fund (a multicap plan) and Quant Infrastructure Fund. Two other programs, Quant Focused Fund and Quant Absolute Fund, are among the top 3 ranked programs for their categories. In this piece, Mint digs deeper to find the reasons behind this stunning performance.
The Quant Mutual Fund is the result of a 2018 takeover of the former Escorts Mutual Fund by Quant Capital, and therefore its pre-2018 returns don’t hold much educational value. Led by Sandeep Tandon, Quant Capital was previously part of Reliance Securities, owned by Anil Ambani. Escorts MF had assets under management (AUM) of ₹235 crores at the time of acquisition. Since the acquisition, the fund house‘s AUM has skyrocketed. He went to ₹239 crore on average in October-December 2019, ₹453 crore in October-December 2020 and a stunning leap to ₹4,630 crores in October-December 2021.
Quant Mutual Fund equity plans at all levels are characterized by incredibly high portfolio turnover rates. These ratios indicate the percentage of a plan’s portfolio that has changed over the past year. For Quant Small Cap, the ratio is 145% for 2021, which means that the entire portfolio has been changed more than once. In the case of Quant Active and Quant Tax Saver, turnover rates are 211% and 283%, indicating even more churn. This goes against the traditional “buy and hold with conviction” model followed by most fund companies in India. It also makes any discussion of the stocks held by the plans unnecessary. They are likely to be changed very soon, anyway. The rollercoaster returns displayed by Quant Mutual Fund have attracted a horde of direct investors, many of whom invest through free online portals and are guided by recent performance. 55% of Quant Small Cap Fund’s AUM is in its direct plan, the corresponding figures for Quant Active and Quant Tax Saver are 49% and 82%. “We give 2/3 weight to liquidity analysis and risk appetite (active risk or not) and 1/3 to valuations. Our portfolios have a high turnover rate for this reason, but it is also the reason for our high returns,” Anupam Saxena, head of national sales, Quant Mutual Fund, told Mint in May 2021.
“Using the VLRT framework, we are able to manage our funds dynamically. Our portfolios always adapt and reflect changing market conditions, investor sentiment and act on all global macros. By managing our portfolio dynamically, we are also able to better manage the risk profile of our plans, striving to deliver superior risk-adjusted returns, so our high turnover rate is nothing but a representation of our portfolio rebalancing strategy based on a risk-on/risk-off environment,” said Sandeep Tandon, MD and CEO of Quant Capital. Interestingly, the same strategy appears to have worked in plans with very different mandates such as small caps, multicaps and infrastructure The returns shown by Quant’s outperforming plans are similar es despite their different categories. “Most mutual funds in India adhere to a certain level of index. This means that a portfolio allocation close to the index with some positive or negative deviation. Quant does not. Quant MF is also being transformed quickly based on a tactical perspective. The portfolios of the funds are quite similar and therefore a broad global strategy works across the board. I started recommending Quant Small Cap and Quant Active Fund to customers who wanted a PMS-like experience in February 2021. What I mean by that is high risk, high reward rounds, I’m not sure what Quant MF will do,” said a distributor. based in Mumbai on condition of anonymity. “Quant MF uses a multitude of data points, including macroeconomics, to make its buy and sell decisions. Their model is proprietary and therefore cannot be fully understood. It is characterized by a high turnover. However, its performance has held up over the past 2 years, even though its size has grown exponentially and it tops the charts in many categories. Investors who are willing to go for this type of trading-focused model would find a system like Quant MF more tax efficient than creating their own algorithms and personally placing trades,” said Dhirendra Kumar, CEO of ValueResearch.
There is no clear answer to why Quant Mutual Fund plans outperform in all areas. However, the high turnover rate and high standard deviation (a measure of volatility) for each offer clues to a momentum-driven pattern. It’s also unclear when or if the wheels driving this model will come off. However, for prudent investors, investing in what you understand is an important principle to follow. Deng Xiaoping, one of China’s ancient rulers, once remarked that it doesn’t matter whether the cat is black or white as long as it catches the mouse. Small online investors who buy Quant mutual fund programs seem to stick to the same thought process.
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