Welcome to PersonalFN’s weekly analysis on diversified equity mutual funds! In this issue, we have analysed Quant Flexi Cap Fund, highlighting its performance, peer comparison, investment strategy, fundamentals, portfolio, and suitability.

Quant Flexi Cap Fund is an actively managed scheme in the Flexi Cap Fund category that follows an agile investment strategy to pick high growth potential stocks and invests in a portfolio mix of large-cap, mid-cap, and small-cap companies.

[Read: Best Flexi Cap Mutual Funds to Invest in 2023 – Top Performing Flexi Cap Mutual Funds in India]

What is the growth of Rs 10,000 invested in Quant Flexi Cap Fund five years ago?

Past performance is not an indicator of future returns
Data as of August 23, 2023 

The erstwhile Quant Consumption Fund was originally launched in September 2008. It was later recategorised and renamed to Quant Flexi Cap Fund in January 2022. Under its previous mandate, the fund held a portfolio that was concentrated towards stocks related to the consumption theme. Now categorised under the Flexi Cap Fund category, Quant Flexi Cap Fund has the flexibility to invest in a range of stocks spread across market caps and diverse sectors. Accordingly, the past performance of the fund is not comparable. However, the fund has done exceptionally well under its current mandate and has turned out to be the top-performing scheme in the category. Quant Flexi Cap Fund’s recent remarkable performance has attracted investor’s attention. In the last two years, Quant Flexi Cap Fund’s performance has grown from just Rs 28 crore to Rs 1,782 crore. In the last five years, Quant Flexi Cap Fund registered growth at a CAGR of 22.5% compared to a growth of 12.7% in its benchmark Nifty 500 – TRI. An investment of Rs 10,000 in Quant Flexi Cap Fund five years back would have now appreciated to Rs 27,639 as against a valuation of Rs 18,095 for a simultaneous investment in its benchmark.

How has Quant Flexi Cap Fund performed in the past?

Scheme Name	Corpus (Cr.)	1 Year	2 Year	3 Year	5 Year	7 Year	Std Dev	Sharpe
Quant Flexi Cap Fund	1,782	21.04	17.00	35.04	22.49	20.77	19.05	0.43
HDFC Flexi Cap Fund	38,266	22.45	22.66	30.77	15.70	15.94	16.97	0.42
JM Flexicap Fund	475	27.31	19.71	29.03	16.27	17.14	16.32	0.39
Franklin India Flexi Cap Fund	11,699	19.30	15.52	27.92	14.00	14.01	16.37	0.39
Edelweiss Flexi Cap Fund	1,295	16.71	12.70	24.39	13.95	15.58	14.77	0.37
Navi Flexi Cap Fund	233	18.07	13.86	24.09	14.11	—	14.71	0.36
PGIM India Flexi Cap Fund	5,973	12.10	6.87	24.04	17.03	16.48	15.47	0.35
Union Flexi Cap Fund	1,595	16.98	11.38	23.75	14.94	14.17	14.43	0.36
Parag Parikh Flexi Cap Fund	39,848	19.04	12.23	23.65	18.52	18.62	12.98	0.40
DSP Flexi Cap Fund	8,827	18.45	9.44	22.83	14.50	14.92	16.14	0.32
NIFTY 500 – TRI		13.32	11.53	22.90	12.65	13.95	15.14	0.33

The securities quoted are for illustration only and are not recommendatory.
Returns are point to point and in %, calculated using the Direct Plan-Growth option. Those depicted over 1-Yr are compounded annualised.
Data as of August 23, 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 before investing. Past performance is not an indicator for future returns. The percentage returns shown are only for indicative purposes.

Quant Flexi Cap Fund’s performance in the last couple of years has been outstanding. The fund managed to limit the downside risk compared to the benchmark and many of its peers during the market crash of 2020. Moreover, Quant Flexi Cap Fund tops the returns chart in the current bull phase. The recent robust performance has helped the fund maintain a noteworthy lead over the benchmark and most of its peers across time frames.

It is important to note that Quant Flexi Cap Fund’s volatility (standard deviation) is the highest in the Flexi Cap Fund category and is much higher than the benchmark. Nonetheless, the remarkable returns generated by the fund have helped it score high on risk-reward parameters. The Sharpe ratio of the fund, as denoted by its risk-adjusted returns, is currently one of the highest in the Flexi Cap Fund category.

What is the investment strategy of Quant Flexi Cap Fund?

Quant Flexi Cap Fund has the mandate to invest a minimum of 65% of its assets in equity and equity-related instruments with no market cap or sector limit. Accordingly, the fund invests in a mix of large-cap, mid-cap, and small-cap companies. The allocation in each of these segments is decided by the fund manager by taking stock of the macroeconomic view. Quant Flexi Cap Fund focuses on the sentiments of the market participants through an in-house predictive analytical tool. This predictive analytics tool is called the VLRT framework, viz. Valuations, Liquidity, Risk, and Timing. Here are the key features of the framework:

Valuation Analytics: Knowing the difference between price and value

Liquidity Analytics: Understanding the flow of money across asset classes

Risk Appetite Analytics: Perceiving what drives market participants to certain actions and reactions

Time: Being aware of the cycles that govern how the other three dimensions interact

Quant Flexi Cap Fund lays emphasis on identifying companies with strong sustainable competitive advantages in good businesses and having sound managements. It follows an aggressive investment approach wherein it constantly looks for opportunities to generate high alpha. In other words, the fund holds many of its stocks with a short-term view, and as a result, the fund has recorded a high portfolio turnover of around 80-230% in the last one year.

What are the top portfolio holdings in Quant Flexi Cap Fund?

Holding in (%) as of July 31, 2023
(Source: ACE MF) 

Quant Flexi Cap Fund usually holds around 35-45 stocks in its portfolio. As of July 31, 2023, the fund held 33 stocks in its portfolio with the top 10 stocks accounting for 43.4% of its assets. Quant Flexi Cap Fund’s top stock holding comprises mainly of large-cap stocks such as Reliance Industries, HDFC Bank, DLF, SBI, and NTPC. The fund also currently holds an allocation of around 32.4% in Derivatives – Futures.

In the last two years, Quant Flexi Cap Fund has benefitted immensely from its exposure in Strides Pharma Science, Jindal Steel & Power, Punjab National Bank, Usha Martin, Tata Communications, Tata Consumer Products, SBI, and NTPC, among many others that have grown remarkably in value since the fund added them in its portfolio. Meanwhile, it has booked substantial profits in The Indian Hotels Company, Zensar Technologies, Dr Reddy’s Laboratories, Macrotech Developers, and ITC, among others.

Sector-wise, Quant Flexi Cap Fund favours the Banking & Finance sector. It also has significant exposure in Metals, Petroleum, Cement, Pharma, Construction, Power, and Media having allocation in the range of 5-12%. Additionally, the portfolio is also diversified across Transportation, Infotech, Engineering, and Telecom.

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

Earlier classified as a consumption-oriented Thematic Fund, Quant Flexi Cap Fund is now categorised under the Flexi Cap Fund category. The fund enjoys the flexibility to invest in a mix of large-cap, mid-cap, and small-cap stocks. Quant Flexi Cap Fund stood strong during the 2020 market crash, wherein it outpaced the benchmark and many of its peers. Moreover, the fund has topped the category returns in the current bull phase, thereby generating significant alpha for its investors. Quant Flexi Cap Fund is quick in its approach to shift allocation between market caps and sectors depending on the market conditions.

Though the volatility registered by Quant Flexi Cap Fund is much higher than the benchmark and the category average, it has generated a higher premium for the level of risk taken as denoted by its Sharpe ratio. The active investment strategy of identifying multi-bagger stocks has resulted in high alpha for investors in Quant Flexi Cap Fund.

The aggressive investment strategy and significant exposure to stocks in the lower market cap makes Quant Flexi Cap Fund suitable only for investors with a very high risk appetite and an investment horizon of at least 5-7 years.

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.

This article first appeared on PersonalFN here