Quant Mid Cap Fund: Identifying High Growth Opportunities in Mid-sized Companies

Quant Mid Cap Fund is an actively managed Mid Cap Fund that has delivered outstanding performance over the past few years, consistently topping the returns chart in its category. Its success stems from the timely identification of attractive, high growth opportunities across various stocks and sectors.

Quant Mid Cap Fund is one of the top-performing schemes in the Mid Cap Fund category that follows an active investment strategy with an aim to record high growth for its investors. The fund was initially launched by Escorts Mutual Fund in February 2001, which was later acquired by the Quant Group in 2018. Quant Mid Cap Fund follows an active investment approach whereby it constantly hunts for attractive opportunities by focusing on the 'buy-on-dips' strategy. The fund is sector and benchmark agnostic, which means the weightage of stocks and sectors in the portfolio will not be guided by the benchmark index.

Notably, Quant Mid Cap Fund was a sub-par performer until 2019 as it followed a hybrid investment strategy, investing a significant portion of its assets in debt instruments. Nonetheless, from 2020 onwards the fund started operating as a pure Mid Cap Fund and has shown a complete turnaround in recent years. This turnaround performance was driven by its in-house risk mitigation and predictive analysis tool called VLRT. Its strategy of timely identifying attractive-looking stocks and sectors and taking calculated exposure in them has worked extremely well for the fund, which helped it record extraordinary growth in the last few years. Consequently, Quant Mid Cap Fund's extraordinary performance has driven investor attention giving a multi-fold boost to its AUM from just Rs 862 crore in September 2022 to around Rs 9,500 crore in September 2024.

In the last five years, Quant Mid Cap Fund has registered growth at an impressive CAGR of 38.7%, compared to a growth of 31.1% in its benchmark Nifty Midcap 150 - TRI. An investment of Rs 10,000 in the fund would have now grown over five times to Rs 51,156 compared to a valuation of Rs 38,807 for a simultaneous investment in its benchmark.

Quant Mid Cap Fund carries an extraordinary performance track record and has handsomely rewarded its investors. On a rolling return basis, in the last 2-year, 3-year, and 5-year periods the fund has outpaced the benchmark by a remarkable margin of around 5 to 8 percentage points CAGR and the category average by 7-10 percentage points CAGR, thus finding a spot among top quartile performers. Even over the shorter time frame of 1 year, the fund has generated a decent lead over the benchmark, outpacing most of its peers. Its superior performance in recent years has boosted its long-term returns as well. Quant Mid Cap Fund now stands among the category outperformers across time periods and has also outpaced its benchmark by a substantial margin.

Notably, the volatility recorded by Quant Mid Cap Fund (17.15%, annualised) is higher than the category average as well as the benchmark, whereas its Sharpe Ratio is currently among the best in the Mid Cap Fund category and much ahead of the benchmark. The fund has managed to reward investors optimally for the level of risk taken.

What is the 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 a substantial portion in stocks of large-cap companies along with some exposure 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. Quant Mid Cap Fund holds many of its stocks with a short-term view, and as a result, it has usually recorded a high turnover of 300-365% in the last two years.

Quant Mid Cap Fund is selective in stock picking and holds a compact portfolio of about 20-30 stocks. As of September 30, 2024, the fund held 20 stocks, with the top 10 holdings accounting for a major 68.8% of its assets. Large-cap stocks such as Reliance Industries and ITC currently appear among its top holdings. Among mid-cap stocks, the fund has a higher allocation to Aurobindo Pharma, Steel Authority of India, IRB Infrastructure Developers, Container Corporation of India, and Tata Communications. 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. The fund also held some exposure in Derivatives - Futures.

In the last two years, Quant Mid Cap Fund has benefited immensely from its holdings in Linde India, while It has booked profits in Adani Power, Jio Financial Services, NMDC, Samvardhana Motherson International, Bharat Heavy Electricals, Oil India, Ipca Laboratories, Torrent Power, Sun TV Network, Oracle Financial Services, and Escorts Kubota, among others. The fund has also benefitted from SAIL, Tata Communications, Aurobindo Pharma, Glaxosmithkline Pharma, Llyods Metals & Energy, Tata Power Company, Linde India, and Reliance Industries, among others that have risen significantly since their addition to the fund's portfolio.

In terms of sectors, Quant Mid Cap Fund's portfolio is currently skewed towards the top 4 sectors viz. Transportation, Metals, Pharma, and Consumption that collectively form around 50.4% of its assets. The rest of its portfolio is diversified across a range of sectors such as Petroleum, Telecom, Finance, and Chemicals, among others. The fund's portfolio is well-diversified across Cyclical, Sensitive, and Defensive sectors.

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

Quant Mid Cap Fund has registered robust growth since 2020 and now stands among the category toppers across short to longer time frames. Its active investment approach and the ability to timely identify multi-bagger ideas has helped it generate remarkable lead over the benchmark and its prominent peers. The predominant midcap allocation and timely identification of high growth stocks enable it to boost portfolio returns. The fund also holds significant allocation to large-cap stocks that can offer stability and steady growth to the portfolio.

Although Quant Mid Cap Fund frequently churns its portfolio and carries a higher turnover ratio (currently between 300% to 365%), it has managed to keep the volatility at reasonable levels. Despite following an aggressive investment approach, the fund lays great emphasis on risk management by creating an optimal mix of stocks spread across sectors and by focusing on the valuation, liquidity, and timing of the investment. Accordingly, Quant Mid Cap Fund has fared outstandingly on the risk-adjusted returns. The Sharpe ratio of the fund is currently among the best in the category and way ahead of the benchmark.

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.

Watch this video to find out the best Mid 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.

The securities quoted are for illustration only and are not recommendatory.

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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.

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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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• 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;

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  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 Mid 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.

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

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