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

Quant Active Fund is a nimble-footed scheme in the Multi Cap Fund category that has shown exemplary growth in the last few years. It follows an active investment strategy to seize attractive opportunities across market caps and sectors, which has proved to be rewarding for investors.

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

Past performance is not an indicator of future returns
Data as of December 13, 2023
(Source: ACE MF, data collated by PersonalFN) 

Quant Active Fund is a Multi Cap Fund that was launched in March 2001 by Escorts Mutual Fund. Notably, the AMC was later acquired by the Quant Group in 2018 and the scheme was renamed. Earlier, in the absence of any allocation limit for Multi Cap Funds, Quant Active Fund used to dynamically manage exposure across market caps depending on the market conditions and generally maintained a large-cap biased portfolio with tactical allocation to mid and small-caps. It now maintains an on-par exposure across market caps.

Quant Active Fund follows a momentum-driven investment approach whereby it constantly hunts for attractive opportunities, which has helped it generate remarkable alpha in recent years and handsomely reward its investors.

While Quant Active Fund’s performance in the past was subdued, the fund witnessed a turnaround phase in recent years, which was driven by its in-house risk mitigation and predictive analysis tool called VLRT. 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.

The fund’s splendid growth has brought it under the limelight. Consequently, its AUM has grown from just Rs 1,459 Crore as of November 2021 to Rs 6,681 crore as of November 2023. In the last five years, Quant Active Fund has registered growth at a CAGR of around 27%, compared to a growth of 19% in the Nifty500 Multicap 50:25:25 – TRI index. An investment of Rs 10,000 in Quant Active Fund five years back would have now tripled to Rs 33,035, which is substantially higher than the valuation of Rs 23,926 for a simultaneous investment in the benchmark index.

[Read: Multi-cap Fund v/s Flexi-cap Fund: Which is a Better Fit for Your Portfolio?]

How has Quant Active Fund performed in the past?

Scheme Name	Corpus (Cr.)	1 Year	2 Year	3 Year	5 Year	7 Year	Std Dev	Sharpe
Nippon India Multi Cap Fund	22,695	32.85	23.86	33.72	19.85	18.71	16.15	0.47
Quant Active Fund	6,681	15.84	14.64	30.84	26.98	23.64	18.48	0.38
Mahindra Manulife Multi Cap Fund	2,461	29.14	16.90	29.41	24.01	—	16.55	0.39
ICICI Pru Multicap Fund	9,515	28.26	17.67	25.07	18.16	16.73	15.00	0.37
Baroda BNP Paribas Multi Cap Fund	2,022	25.08	13.00	24.73	20.19	16.99	15.67	0.34
Sundaram Multi Cap Fund	2,201	25.79	13.47	24.29	17.44	17.16	14.81	0.34
Invesco India Multicap Fund	2,895	26.22	13.36	24.25	18.85	17.14	15.66	0.34
ITI Multi-Cap Fund	724	33.12	18.26	21.40	—	—	14.92	0.29
Nifty500 Multicap 50:25:25 – TRI		25.53	15.05	24.45	19.05	17.38	15.47	0.28

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 December 13, 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 Active Fund demonstrated strong performance between 2020 and 2022, which has enabled it to establish a superior long-term track record compared to the benchmark and its peers. In the last 3 years, Quant Active Fund has delivered impressive alpha by outpacing the index by a remarkable margin of about 5 percentage points and also outpaced most of its category toppers. Even over the longer 5-year and 7-year periods, Quant Active Fund has outperformed most of its peers by an outstanding margin. Even though the fund has trailed its peers and the benchmark in the last one year, it has the potential to bounce back with strong gains.

Following an active investment strategy, the volatility registered by the fund is higher than the benchmark and is the highest in the category. Nonetheless, the remarkable returns generated by the fund have helped it score high on risk-reward parameters. The Sharpe ratio of the fund, which denotes its risk-adjusted returns, is currently one of the highest in the Multi Cap Fund category.

What is the investment strategy of Quant Active Fund?

Till early 2021, Quant Active Fund followed a dynamic investment approach to invest across market caps without any limits. However, it now follows the revised investment limits for Multi Cap Funds as defined by SEBI. Quant Active Fund is mandated to invest at least 75% of its assets in equity and equity-related instruments investing a minimum of 25% each in large-caps, mid-caps, and small-caps. The balance 25% can be invested across market caps as per the fund manager’s conviction.

The fund follows a momentum-based strategy to identify attractive-looking opportunities across stocks and sectors. Quant Active Fund selects stocks by analysing them on its proprietary 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.

This framework enables the scheme to understand the various investment trends, thereby allowing it to select high-growth potential stocks. Quant Active Fund 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 75-240% in the last one year.

What are the top portfolio holdings in Quant Active Fund?

Holding in (%) as of November 30, 2023
(Source: ACE MF, data collated by PersonalFN) 

Quant Active Fund usually holds 45-60 stocks in its portfolio. As of November 30, 2023, QAF held 50 stocks in the portfolio, with the top 10 stocks accounting for 40.6% of its assets. Reliance Industries, Aurobindo Pharma, JIO Financial Services, Escorts Kubota, and Punjab National Bank currently form part of the fund’s top allocation. The fund’s top holding witnesses frequent changes. Only a handful of stocks, such as Fortis Healthcare, IRB Infrastructure Developers, and CRISIL, have constantly found a place among the prominent contenders in the fund’s portfolio. The fund also held some exposure to Derivatives – Futures; current exposure stands at 16.5%.

In the last two years, Quant Active Fund benefitted the most from its holdings in Fortis Healthcare, IRB Infrastructure Developers, and Hindustan Copper, while it booked profit in Dr Reddy’s Laboratories, L&T, Capri Global Capital, DLF, Macrotech Developers, The Indian Hotels Company, Linde India, SBI, and ITC, among many others.

Quant Active Fund takes active sector calls depending on the market outlook. It currently has higher exposure to Banking & Finance, Pharma, and Petroleum, that collectively form 38.6% of its assets. It also holds significant exposure to Transportation, Consumption, Mining, Power, Metals, Infotech, and Cement, having allocation in the range of 3-5%, along with diversification to Chemicals, Telecom, and Engineering, among others.

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

Until 2020, Quant Active Fund ‘s performance was rather unimpressive, leaving little impact on investors. However, since 2020, Quant Active Fund has registered robust growth and has created an unbeatable performance track record. The fund now stands among the category-toppers over longer time frames. Quant Active Fund’s active investment approach and the ability to timely identify multi-bagger ideas has helped it to generate remarkable lead over the benchmark and its prominent peers.

Despite following an aggressive investment approach, Quant Active Fund places great emphasis on risk-management by creating an optimal mix of stocks spread across market caps and sectors by focusing on valuation, liquidity, and timing of the investment. Accordingly, Quant Active Fund has fared outstandingly on the risk-adjusted returns. The sizeable exposure to mid caps and small caps and the ability to timely identifying 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.

Quant Active Fund is suitable for investors looking for an agile scheme in the Multi Cap Fund category and have 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