If you are a mutual fund investor, the first thing you should do is check which mutual funds are giving higher returns in the short, medium and long term and whether your fund is on that list. What if you see a particular mutual fund AMC topping the mutual fund schemes in various categories? This is what is happening with Quant AMC mutual fund scheme. Whether you look at the small cap category, mid cap category or active funds category, this AMC’s fund is topping the charts. Recently, allegations have come up against Quant AMC, which is currently under investigation by SEBI. However, every mutual fund investor should try to understand the maths and methodology as to why an AMC can outperform its scheme compared to its peers. In this article, we will analyze the following points: How Quantitative AMC Mutual Fund Schemes Outperform Across Categories And what are the specific unique investment strategies they are currently following?
About Quantitative Asset Management Company (AMC)
Before we explain how this AMC mutual fund scheme actually works, let us understand more about this mutual fund company.
This is a mutual fund AMC that was only set up in 2018, six years ago. It acquired Escorts Mutual Fund in 2018, which had assets under management of around Rs 2,000 crore. After the acquisition, its assets under management were around Rs 1,300 crore till March 2020. According to ET, Quant AMC’s assets under management currently stand at Rs 93,000 crore. It spans 27 schemes (21 equity schemes, 1 bond scheme, 3 hybrid schemes and 2 money market schemes with options like regular/direct and growth/dividend).
What are the front-running allegations against Quant AMC?
A few days ago, SEBI conducted search operations at a quant mutual fund office due to allegations of front-running in mutual fund schemes.
Front running in the stock market is when a broker, individual or a fund manager executes trades in their own account before executing the trades for their clients. With such advance information, they can make easy money in a short space of time. Front running is illegal in India.
If you missed it, check out this article. Quant AMC front-running allegations and what investors can do now.
Quantitative AMC Mutual Funds (excluding sector/thematic funds) – Performance over the past 3-10 years
Let’s take a look at the Quant AMC mutual funds that have been around for the last 10 years and their performance over a period of 3-10 years.
|
Funding |
3 years | 5 years | 10 years |
|---|---|---|---|
| Quantitative ELSS Tax Saver Fund | 29.0% | 35.4% | 25.9% |
| Quantitative Active Funds | 27.0% | 32.2% | 22.3% |
| Quantitative Large and Mid Cap Equity Fund | 31.6% | 29.4% | 22.0% |
| Quantitative Small Cap Fund | 34.0% | 44.0% | 22.2% |
| Quantitative Mid Cap Fund | 35.0% | 37.2% | 22.0% |
| Quantitative Flexi Cap Fund | 28.0% | 34.1% | 21.5% |
| Quantitative Focused Funds | 24.5% | 25.2% | 20.2% |
As you can see, quantitative mutual funds have performed well, generating annualized returns of over 20% over the past decade. As I mentioned in my previous article, 7 high-yield mutual funds I’m investing in for 2024 The company also has a Quantitative Midcap Fund and a Quantitative Smallcap Fund. This AMC has adopted a similar investment strategy across its schemes and has been doing well.
What is the investment framework adopted by Quant AMC Mutual Fund Scheme?
Quant AMC Mutual Fund employs the VLRT investment framework (valuation, liquidity, risk tolerance, time).
evaluation – Know the difference between price and value
Liquidity – Understand capital flows between asset classes.
time – Align with the current of values and actions
Risk Appetite – Recognize what drives market participants to act or react in certain ways.
Our proprietary analytical framework, which enables “predictive analytics”, encompasses all available asset classes and sectors, forming a multi-dimensional research perspective.
It has been observed that Quant AMC Mutual Funds have high turnover i.e. they do not hold stocks for long periods. As an example of Quant Active Funds, more than 70% of the top 10 stocks were sold within a 6 month period. The turnover rate in one year in 2023 was 500%. They do not believe in buy and hold strategy. Similar strategies and high turnover rates are seen across Quant AMC Mutual Fund schemes.
Do risk metrics tell us anything special about these funds?
Let’s analyze some risk indicators.
#1 – R-Squared
This index compares a fund’s performance to that of a benchmark index, with 1 meaning the fund closely replicates the underlying stocks of the index.
For example, the R-squared metric for Quantitative Midcap Fund is 0.76. This means that it is far from replicating the benchmark index, which is the ideal scenario for an active fund. To replicate an index, an investor would invest in an index fund rather than an active fund.
Another example is Quant Active Fund, a multi-cap fund.The fund has an R-squared of 0.7, which is the lowest among multi-cap funds, indicating that it is far from replicating the index.
The bottom line is that they are far from replicating the stocks under a particular index.
#2 – Standard Deviation
This indicates the volatility of the fund.
Most Quant AMC Mutual Funds have a high standard deviation, which means they are more volatile than other funds. They may have positive or negative returns due to ups and downs. If there is a major correction in the stock market in the future, the NAV of these funds may fall significantly. This is the exact opposite of what we have presented in this article. 6 High-yield, Low-risk Investment Trusts for 2024 It is classified as low risk by Value Research.
Conclusion: Quant AMC mutual fund schemes have been performing well in their respective mutual fund categories due to their unique investment framework – VLRT. Unlike other funds that invest based on growth, valuation, momentum stocks and special situations, these funds have a well-defined investment strategy that does not fall under buy and hold strategy. It is unclear how long such a unique strategy will work for this AMC, but it is working well for now. I myself have invested in this mutual fund scheme along with my family members.
Though allegations of front-running have surfaced against this AMC, so far all its schemes have performed well compared to their peers. Investors should wait until SEBI completes its investigation before deciding whether to invest further, continue with their existing investments or exit the fund. In the event that such an investigation takes time, which may result in a significant decline in the performance of mutual fund schemes in the coming months, investors should consider and take a decision quickly regarding such investments.
Suresh KP is the Founder of Myinvestmentideas. He is a NISM Certified Investment Advisor and NISM Certified Research Analyst. He has been involved in analyzing financial markets for the last 20 years. He can be reached at suresh@myinvestmentideas.com.
