The mutual fund industry has grown with its product offerings from traditional large-cap, mid-cap, small-cap and flexi-cap funds to relatively evolved offerings such as the hybrid funds, ESG funds, international funds, etc. In the past two years, there has been an addition to this list with the quantitative funds.
Quantitative investing is a well-established approach globally with significant number of products and assets under management, however it is yet to gain the same traction in Indian markets. This strategy provides an alternative approach to traditional ways of investing.
The quant model theme in a fund uses a systematic approach towards portfolio management, thereby limiting behavioral biases and generating optimal returns. What really sets quant-based models apart is the way fund managers processes the quantitative data and make investment decisions.
Axis Mutual Fund is the new entrant in quant funds with the launch of Axis Quant Fund; it is an open-ended equity scheme following a quantitative model.
On the launch of this fund, Mr Chandresh Nigam MD and CEO of Axis AMC said, “The landscape of active equity investing has evolved and markets are becoming more efficient. While introducing new fund offers in the market, our constant aim has been to provide investors with a product basket that suits their needs and helps them in diversifying their portfolio, allowing them to make long term allocations. The launch of Axis Quant Fund is our attempt to continue that journey for investors by offering them a product that can use the power of data to create long term wealth.”
Table 1: Details of Axis Quant Fund
|An open-ended equity scheme following a quantitative model.
|To generate long-term capital appreciation by investing primarily 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.
|Rs 5000/- and in multiples of Re 1 thereafter. Additional purchase Rs 100/- and in multiples of Re 1 thereafter.
|Rs 10/- per unit
|S&P BSE 200 TRI
|June 11, 2021
|June 25, 2021
(Source: Scheme Information Document)
What will the Investment Strategy of Axis Quant Fund be?
Axis Quant Fund will predominantly invest in equity and equity related instruments selected based on an in-house proprietary quantitative model to generate long-term capital appreciation.
The fund employs a fundamental data-driven bottom-up approach, a stock selection strategy that is backed with a systematic investment method. This strategy aims to identify quality stocks in combination with the tenets of growth and value investing. The stocks will be evaluated along multiple parameters and across different styles to arrive at a composite score and the portfolio will be reviewed and monitored on a pre-defined frequency.
The investment philosophy revolves around the Q-GARP: Identifying (Q)uality stocks which have good (G)rowth prospects but (A)t a (R)easonable (P)rice. While carrying out portfolio construction, this approach for selecting stocks is augmented with disciplined risk management.
The fund house is of the view that rules based mechanism will assist in less human bias stock selection process. It is a well-known fact that data is increasingly playing an important role in the fund management process. As data becomes available in a more structured manner, it will bring in efficiency and also lead to accelerated decision making.
Quantitative data can be used as an enhancement in the traditional fund management process or it can be used on a standalone basis to create alpha for investors.
This scheme apart from investing 80% of its assets in equity & equity related instruments of selected companies based on a quantitative model. It may also invest up to 20% of its assets in other equity related instruments, up to 20% in debt and money market instruments and up to 10% in units issued by REITs InvITs.
Under normal circumstances, the asset allocation will be as under:
Table 2: Asset Allocation of Axis Quant Fund
|Indicative Allocation (% of assets)
|Equity & Equity related instruments of selected companies based on a quantitative model#
|Other Equity and Equity related instruments#
|Debt & Money Market Instruments#
|Low to Medium
|Units issued by REITs & InvITs
|Medium to High
#Derivatives – Investment in derivatives instruments shall be to the extent of 50% of the Net Assets as permitted by Regulations / guidelines issued by SEBI from time to time.
(Source: Scheme Information Document)
Who will manage Axis Quant Fund?
Mr Deepak Agarwal and Mr Hitesh Das (for foreign securities) will be the dedicated fund managers for this scheme.
Mr Deepak Agarwal is Assistant Fund Manager – Equity at Axis Asset Management Company Ltd. and he has over 21 years of experience in financial services industry. Prior to this, he was working as Research Analyst – Equity at firms such as Axis Asset Management Company Ltd., Tata Asset Management Ltd., Axis Capital Ltd., Indiabulls Securities Ltd., Vmax Financial Services Ltd., BRICS Securities Ltd., and as Review Manager at Sureprep India Pvt. Ltd.
Mr Agarwal is a Chartered Accountant (C.A.) and B.Com graduate, and the scheme he manages are Axis Banking ETF (along with Viresh Joshi)
Mr Hitesh Das is Equity Research Analyst at Axis Asset Management Company Ltd. and has over 12 years of experience in financial services. Prior to this, he was associated as an Equity Research Analyst with firms such as Barclays Securities India Pvt. Ltd., Credit Suisse Securities (India) Pvt. Ltd., Ebusinessware (India) Pvt. Ltd., and as a Risk Analyst at Yes Bank.
His qualifications include, PGDM, M.Tech and B.Tech. Currently, the other schemes under his management are Axis Growth Opportunities Fund, Axis ESG Equity Fund, Axis Global Equity Alpha Fund of Fund, Axis Special Situations Fund, Axis Bluechip Fund, Axis Midcap Fund, Axis Flexicap Fund, Axis Focused 25 Fund.
Fund Outlook – Axis Quant Fund
Axis Quant Fund offers investors a unique proposition of a fundamentally driven quantitative approach. The fund will choose stocks based on core metrics such as growth, value, and quality, which will be screened using rule-based standards.
The quantitative investment model has an unbiased approach to portfolio management and it aims to outperform across various business cycles. This scheme provides a diversified portfolio across sectors and market capitalization; it will process complex data systematically and give objective insights to make quick informed decisions.
The quant model of this scheme will invest based on various fundamental factors such as, return on equity, sales growth, cash flow, debt to equity ratio, earnings growth, price to book, price to earnings, dividend yield, and earnings yield. Additionally, it has a few technical factors such as, liquidity, stock price momentum, volatility, and historical performance.
However being a thematic fund, one of the risks associated with this quant model theme is the time it may take for a quant model to adapt to new developments in market conditions and the economic dynamics. This could lead to delayed decision making towards the portfolio and may lack to provide you with the best possible returns.
This scheme is suitable for investors seeking capital appreciation over long term by investing in a quant based model. As this scheme will invest in direct equities which consist of high risk, you need to ensure suitability of your risk tolerance, long investment horizon, and determine if your investment objective is aligned to the fund’s objective.
This article first appeared on PersonalFN here