Quant Mid Cap Fund: Generating Alpha through Agile Portfolio Strategies

Mid Cap Funds offer you the scope to generate high returns compared to Large Cap Funds at a relatively lower risk compared to Small Cap Funds. These funds invest predominantly in companies that are in the growth stage and have the potential to become large-caps of tomorrow. So, if you are looking to earn market-beating returns and have the appetite to handle market volatility, Mid Cap Funds can form part of your portfolio.

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Quant Mid Cap Fund is an actively managed small-sized Mid Cap Fund that has recorded extraordinary performance in the last few years to top the returns chart in its category and stand strong across time frames.

Past performance is not an indicator of future returns
April 05, 2023
(Source: ACE MF)

Despite being small in size, Quant Mid Cap Fund has registered extraordinary performance and has handsomely rewarded its investors. In the last 2-year and 3-year periods, Quant Mid Cap Fund has outpaced the benchmark by a remarkable margin of around 8.5-10.5 percentage points CAGR and also outpaced most of its category peers. Even over the shorter 1-year period, the fund has generated a noticeable lead over the benchmark and many of its peers. Its superior performance in the recent past has boosted its long-term returns as well. Quant Mid Cap Fund is now a top-performing Mid Cap Fund having superior returns across time frames.

The volatility recorded by the fund is higher than the category average, though in line with the benchmark, whereas its Sharpe Ratio is currently the best in the Mid Cap Fund category and much ahead of the benchmark. Thus, Quant Mid Cap Fund has managed to reward investors optimally for the level of risk taken.

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Investment strategy of Quant Mid Cap Fund

Categorised as a Mid Cap Fund, Quant Mid Cap Fund is mandated to invest a minimum of 65% of its assets in stocks of mid-cap companies, i.e., companies ranking 101st to 250th in terms of market capitalisation. The fund also allocates around 10-30% of its assets in stocks of large-cap companies and up to 5% in small-cap stocks. Quant Mid 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:

i) Valuation Analytics: Knowing the difference between price and value;

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

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

iv) 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 Mid Cap Fund usually has recorded a high turnover of 100-300% in the last two years.

Quant Mid Cap Fund is selective in stock picking and holds a compact portfolio of about 30-35 stocks. As of March 31, 2023, the fund held 30 stocks, with the top 10 stocks accounting for 55.2% of its assets. Large-cap stocks such as HDFC Bank and Reliance Industries are currently the fund's top holdings having respective allocation of 8.2% and 6.7%. Among mid-cap stocks, Quant Mid Cap Fund has a higher allocation to Punjab National Bank, Tata Communications, Linde India, Voltas, Escorts Kubota, The Indian Hotels Company, and Union Bank of India. Unlike many of its peers, Quant Mid Cap Fund does not shy away from holding an exposure of 5% or more in individual mid-cap stocks, and neither does it hesitate from holding unconventional bets.

In the last two years, Quant Mid Cap Fund has booked profits in several stocks like Zee Entertainment Enterprises, Adani Enterprise, ICICI Securities, Sumitomo Chemical India, Bharat Forge, Ambuja Cements, Siemens, Cummins India, Abbott India, Ashok Leyland, Bank of Baroda, among others. The fund has also benefitted from Linde India, CRISIL, The Indian Hotels Company, Patanjali Foods, Sundaram Finance, Escorts Kubota, Bosch, and Punjab National Bank, among others that have risen significantly since Quant Mid Cap Fund added them in its portfolio.

In terms of sectors, Quant Mid Cap Fund's portfolio is currently skewed towards Banking & Finance, Auto & Auto Ancillaries that collectively form around 52% of its assets. The rest of its portfolio is diversified across a range of sectors such as Pharma, Petroleum, Telecom, Chemicals, Consumer Durables, and Hotels, among others. Although Cyclicals form a major part of Quant Mid Cap Fund's portfolio, the fund carries reasonable exposure to Defensives.

Suitability

The past performance of Quant Mid Cap Fund was ordinary, and it failed to make an impression among investors. However, Quant Mid Cap Fund has registered robust growth since 2020 and has created an unbeatable performance track record. The fund now stands among the category-toppers across short to longer time frames.

Although Quant Mid Cap Fund frequently churns its portfolio and carries a higher turnover ratio (currently between 100% to 300%), it has managed to keep the volatility at reasonable levels. The predominant mid-cap allocation and timely identifying high growth stocks enable it to boost portfolio returns. It also holds significant allocation to large-cap stocks that can offer stability and steady growth to the portfolio.

Quant Mid Cap Fund is suitable for aggressive investors looking for an agile Mid Cap Fund with 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; except for one of the Research Analyst holding units of Quant Midcap 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