Behavioural bias such as confirmation bias, optimism bias, loss-aversion bias, and recency bias can affect investment decisions. Due to these biases, investors often deviate from rational decisions.

A Rule-based investing sets aside assumptions, sentiments, intuitions, and impulses to avoid pitfalls of behavioural bias as well as minimize ‘Greed’ and ‘Fear’.

Quant Fund is a fund that constructs portfolio following a rule-based quantitative model. The quant model helps in selection of relevant stocks based on predefined parameters.

ICICI Pru AMC is the latest to launch a quant fund viz. ICICI Pru Quant Fund. It will utilize quantitative parameters such as macro indicators (market cap to GDP, currency movement), fundamental parameters (P/E ratio, P/B ratio, Dividend yield, Return on Investment, Return on Asset), and technical indicators (Relative Strength Index, Moving Average Convergence Divergence), etc.

Being a thematic fund, ICICI Pru Quant Fund is mandated to invest minimum 80% of its assets in equity & equity related instruments following a quant based strategy to select stocks. The scheme will invest in stocks of S&P BSE 200 universe based on an in-house proprietary quant model.

ICICI Pru Quant Fund is an open-ended equity scheme that will seek to generate capital appreciation by predominantly investing in equity and equity related instruments selected based on a quantitative model. However, there is no assurance or guarantee that the investment objective of the scheme will be achieved.

Table 1: Details of ICICI Pru Quant Fund

Type An Open ended Equity Scheme following Quant based investing Category Thematic Fund
Investment Objective To generate capital appreciation by predominantly investing in equity and equity related instruments selected based on a quantitative model. However, there can be no assurance that the investment objective of the Scheme will be achieved.
Min. Investment Rs 1,000 and in multiples of Re 1 thereafter Face Value Rs 10/- per unit
  • Direct

  • Regular

  • Growth

  • Dividend

Entry Load Not Applicable Exit Load – An Exit Load of 1% is payable if Units are redeemed / switched-out upto three months from the date of allotment;
– Nil if Units are redeemed / switched-out after three months from the date of allotment
Fund Manager Mr Roshan Chutkey Benchmark Index S&P BSE 200 (Total Returns Index)
Issue Opens November 23, 2020 Issue Closes December 07, 2020

(Source: Scheme Information Document

Investment strategy – ICICI Pru Quant Fund

ICICI Pru Quant Fund will invest in equity and equity related securities based on the Quantitative model, which will ensure limited human intervention in the entire process of screening and selection of stocks.

The universe of stocks will be selected from the S&P BSE 200 Index. The fund will exclude some stocks from investable universe based on certain parameters such as poor corporate governance standards, liquidity constraints, high default risk, etc.

The fund will consider the below mentioned parameters for stocks screening/selection:

  • Price to Book
  • Price to Earnings
  • Return on Equity
  • Dividend Yield
  • Earnings per share change
  • Interest Coverage Ratio
  • Analyst Ratings
  • Return on Invested Capital
  • Return on Assets

The stock level exposures will be measured by combination of any of the above mentioned parameters (Historical or Estimates). Each chosen parameter will be assigned an equal weight in order to avoid any bias to a particular parameter. The Scheme will invest in approximately 30-60 stocks from the investable universe of S&P BSE 200 index stocks.

Table 2: Asset Allocation of ICICI Pru Quant Fund

Instruments Indicative Allocation (% of assets) Risk Profile
Minimum Maximum High/Medium/Low
Equity and Equity related instruments 95 100 High
Debt and money market instruments 0 5 Low to Medium
Units of mutual funds 0 5 Medium to High
Units of REITs & InvITs 0 5 Medium to High

(Source: Scheme Information Document

The fund manager in consultation with the Chief Investment Officer will review the parameter applied to the stocks selection process on an annual basis. Rebalancing of the portfolio will be carried out in the following scenarios:

i) Ad hoc basis to factor any adverse news, corporate action, rating downgrade, etc.

ii) During annual review of parameters of the quant model

iii) Rebalancing to give effect to changes suggested by the quant model on monthly or quarterly basis

Who will manage ICICI Pru Quant Fund?

ICICI Pru Quant Fund will be managed by Mr Roshan Chutkey

Roshan Chutkey is a Fund Manager at ICICI Pru AMC. He has been associated with the AMC since February 2015 and has a total experience of 15 years. Roshan has a Masters degree in Finance from London Business School. Besides, he has done Engineering from IIT Madras and MBA from IIM Lucknow along with completing the CFA Program from the CFA Institute, USA.

Among other schemes that Roshan manages are ICICI Pru Banking & Financial Services FundICICI Pru Bharat Consumption Fund – Series 5ICICI Prudential Growth Fund – Series 1, and ICICI Pru India Opportunities Fund.

Fund outlook – ICICI Pru Quant Fund

ICICI Pru Quant Fund will use the data derived from the quant model to pick stocks for the investment universe. This means that a lot will rely on the efficiency and robustness of the model developed by the fund management team.

However, the fund manager will play an equally crucial role to ensure that the model is assessed periodically to determine the need for change in parameters. The fund manager will also play a part in rebalancing the portfolio to implement changes suggested by the model and to act quickly in case of ad hoc events.

One can consider investing in ICICI Pru Quant Fund provided one is willing to take the risk and has a long-term investment horizon.

This article first appeared on PersonalFN here

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