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.
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.
Graph 1: Growth of Rs 10,000 if invested in Quant Mid Cap Fund 5 years ago
Past performance is not an indicator of future returns
April 05, 2023
(Source: ACE MF)
Incepted in February 2001, Quant Mid Cap Fund is a small-sized scheme in the Mid Cap Fund category that follows aggressive investment strategies. The fund was initially launched by Escorts Mutual Fund, which was later acquired by Quant Group in 2018. Quant Mid Cap Fund follows an active investment approach whereby it constantly hunts for attractive opportunities by focusing on ‘buy on dips’ strategy. The fund is sector and benchmark agnostic. This means the weightage of stocks and sectors in the portfolio will not be guided by the benchmark index. Its small corpus gives it the advantage of easy liquidation and the ability to quickly shift allocation to capitalise on the various opportunities present in the market. The fund’s strategy of timely identifying attractive-looking stocks and sectors and taking higher exposure in them has worked extremely well in its favour in the last few years, which helped it record extraordinary growth in the last few years. In the last five years, Quant Mid Cap Fund has registered growth at a CAGR of 19.7%, compared to a growth of 11.9% in its benchmark Nifty Midcap 150 – TRI. An investment of Rs 10,000 in Quant Mid Cap Fund would have now more than doubled to Rs 24,548 compared to a valuation of Rs 17,542 for a simultaneous investment in its benchmark.
Table: Quant Mid Cap Fund’s performance vis-á-vis category peers
|Quant Mid Cap Fund
|PGIM India Midcap Opp Fund
|SBI Magnum Midcap Fund
|Motilal Oswal Midcap Fund
|Mirae Asset Midcap Fund
|HDFC Mid-Cap Opportunities Fund
|Kotak Emerging Equity Fund
|Edelweiss Mid Cap Fund
|Nippon India Growth Fund
|ICICI Pru Midcap Fund
|Nifty Midcap 150 – TRI
Returns are point to point and in %, calculated using the Direct Plan-Growth option. Those depicted over 1-Yr are compounded annualised.
Data as on April 05, 2023
(Source: ACE MF)
*Please note, this table only represents the best-performing funds based solely on past returns and is NOT a recommendation. Mutual Fund investments are subject to market risks. Read all scheme-related documents carefully. Past performance is not an indicator for future returns. The percentage returns shown are only for indicative purposes.
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.
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.
Graph 2: Top portfolio holdings in Quant Mid Cap Fund
Holding in (%) as of March 31, 2023
(Source: ACE MF)
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.
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.
This article first appeared on PersonalFN here