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

Quant Mid Cap Fund is a small-sized Mid Cap Fund that has recorded extraordinary performance in recent years through active portfolio management. It stands among category toppers across long-term time frames and has outpaced the benchmark by a remarkable margin.

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

Past performance is not an indicator of future returns
Data as of November 28, 2023
(Source: ACE MF, data collated by PersonalFN) 

Incepted in February 2001, Quant Mid Cap Fund is an emerging 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 is guided by the benchmark index. Its relatively 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 five years, Quant Mid Cap Fund has registered growth at a CAGR of 27.5%, compared to a growth of 21.8% in its benchmark Nifty Midcap 150 – TRI. An investment of Rs 10,000 in Quant Mid Cap Fund would have now more than tripled to Rs 33,724 compared to a valuation of Rs 26,812 for a simultaneous investment in its benchmark.

How has Quant Mid Cap Fund performed in the past?

Scheme Name Corpus (Cr.) 1 Year 2 Year 3 Year 5 Year 7 Year Std Dev Sharpe
Quant Mid Cap Fund 3,268 26.76 23.50 37.78 27.51 22.96 18.54 0.46
Motilal Oswal Midcap Fund 6,060 29.56 24.85 34.82 24.70 18.73 16.71 0.47
Mahindra Manulife Mid Cap Fund 1,554 35.00 20.52 31.74 23.57 17.12 0.42
Nippon India Growth Fund 19,082 34.25 21.50 31.35 24.08 20.33 16.28 0.44
HDFC Mid-Cap Opportunities Fund 47,846 33.39 25.18 31.11 22.47 18.93 15.63 0.46
SBI Magnum Midcap Fund 13,202 25.45 16.88 30.04 22.86 16.83 16.19 0.43
Edelweiss Mid Cap Fund 3,793 26.89 17.88 29.25 23.84 20.27 16.53 0.41
Kotak Emerging Equity Fund 33,700 23.92 17.10 27.58 22.91 19.35 15.03 0.42
PGIM India Midcap Opp Fund 9,102 12.59 10.72 27.44 25.68 20.05 16.53 0.39
Baroda BNP Paribas Mid Cap Fund 1,471 24.55 16.31 27.01 21.62 17.98 15.56 0.39
Nifty Midcap 150 – TRI 31.68 19.09 29.31 21.79 19.53 17.34 0.39

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 November 28, 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.

Despite its small corpus size, Quant Mid Cap Fund has registered extraordinary performance in recent years 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 4.4-8.5 percentage points CAGR and also outpaced most of its category peers. Even over the shorter 1-year period, the fund has outpaced several of its peers, though it has trailed the benchmark. 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 with superior returns across most time frames.

The volatility recorded by the fund is higher than the category average, as well as the benchmark. Despite this, its Sharpe Ratio is currently among 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.

[Read: 5 Best Mid Cap Funds for 2024 – Top Performing Mid Cap Mutual Funds in India]

What is the 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 around 100-400% in the last two years.

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

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Holding in (%) as of October 31, 2023
(Source: ACE MF, data collated by PersonalFN) 

Quant Mid Cap Fund is selective in stock picking and holds a compact portfolio of about 30-35 stocks. As of October 31, 2023, the fund held 21 stocks, with the top 10 stocks accounting for 56.6% of its assets. The fund currently has higher allocation to mid-cap and large-cap stocks such as Linde India, Reliance Industries, Dixon Technologies (India), NMDC, and Punjab National Bank. It also held allocation of about 20% in Derivatives – Futures.

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 The Indian Hotels Company, Patanjali Foods, HDFC Bank, Grasim Industries, Bharat Forge, Bharti Airtel, Sundaram Finance, Dalmia Bharat, Sundram Fasteners, Siemens, Cummins India, and LTMindtree, among others. The fund has also benefitted from Escorts Kubota, Linde India, CRISIL, and Piramal Enterprises, 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 Petroleum, Banking & Finance, Pharma, and Chemicals that collectively form around 47% of its assets. The rest of its portfolio is diversified across a range of sectors such as Auto & Auto Ancillaries, Power, Engineering, Consumer Durables, and Mining, among others. The fund currently carries reasonable exposure across cyclicals, defensives, and sensitive sectors.

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

Quant Mid Cap Fund’s performance until 2019 was ordinary, and it failed to make an impression among investors. However, Quant Mid Cap Fund has registered robust growth from 2020 onwards and has generated high alpha for its investors. The fund now stands among the category-toppers across various time frames.

Although Quant Mid Cap Fund frequently churns its portfolio and carries a higher turnover ratio (100% to 300% in recent months), it has managed to generate reasonable risk-adjusted returns. The predominant mid-cap allocation and the ability to timely identify high growth stocks enables it to boost portfolio returns. It also holds significant allocation to large-cap stocks that can offer stability and steady growth to the portfolio. Moreover, the allocation to Derivatives – Futures can prove to be an efficient hedging technique.

Quant Mid Cap Fund is suitable for aggressive investors looking for a momentum-driven Mid Cap Fund with 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

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