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

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.

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

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.

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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.

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.

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.

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.

Terms and condition on which its offer research report

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Details of associates

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;

12. Suresh Lulla;

13. I V Subramaniam.

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;

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