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 a Flexi Cap Fund that follows an active investment strategy to identify high-growth stocks and dynamically shifts the portfolio mix across large-cap, mid-cap, and small-cap companies. Over the past few years, this fund has demonstrated remarkable growth, consistently outperforming its benchmark and delivering substantial alpha for its investors.

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 May 29, 2024
(Source: ACE MF, data collated by PersonalFN) 

Originally launched as a thematic fund in September 2008 by Escorts Mutual Fund (which was later acquired by the Quant group in 2018), the Quant Flexi Cap Fund has undergone several transformations in its investment mandate. Initially categorised as a sector-oriented scheme focusing on stocks in the power and energy sectors, it transitioned to become Quant Consumption Fund in 2018, with a new focus on consumption-driven companies. Subsequently, in January 2022, the fund underwent another transformation, leading to its reclassification and renaming as Quant Flexi Cap Fund.

Under its current Flexi Cap Fund mandate, Quant Flexi Cap Fund enjoys the flexibility to invest across market caps and diverse sectors. Consequently, the fund’s historical long-term performance is not comparable. However, the fund has excelled under its current mandate, emerging as the top-performing scheme in its category. Following a period of underperformance between 2018-2019, characterised by changes in sponsor (from Escorts to Quant group) and the fund management team, Quant Flexi Cap Fund has demonstrated a smart recovery and a remarkable turnaround. This resurgence can be attributed to its in-house risk mitigation and predictive analysis tool called VLRT.

Quant Flexi Cap Fund’s proactive approach to timely investments in attractive opportunities has proven highly effective, propelling it to surpass both benchmark and category average across time frames. The fund’s stellar performance has attracted investor’s attention. In the last two years, the fund’s corpus has surged from just Rs 310 crore to Rs 5,563 crore as of April 2024.

In terms of returns, Quant Flexi Cap Fund has delivered impressive growth, boasting a robust CAGR of 32.6% over the past five years, compared to just 18.1% for its benchmark Nifty 500 – TRI. An investment of Rs 10,000 in Quant Flexi Cap Fund five years back would have now quadrupled to Rs 40,994 as against a valuation of Rs 22,995 for a simultaneous investment in its benchmark.

How has Quant Flexi Cap Fund performed on a rolling return basis?

Scheme Name	Corpus (Cr.)	1 Year	2 Year	3 Year	5 Year	7 Year	Std Dev	Sharpe
Quant Flexi Cap Fund	5,563	35.26	20.66	34.99	26.82	22.24	18.44	0.36
HDFC Flexi Cap Fund	52,874	30.81	22.47	29.85	18.55	16.88	14.04	0.41
Bank of India Flexi Cap Fund	879	37.45	18.93	28.78	—	—	16.02	0.38
JM Flexicap Fund	2,107	41.08	23.61	28.68	20.65	18.31	14.88	0.45
Franklin India Flexi Cap Fund	15,267	29.66	17.07	25.99	17.52	15.33	13.95	0.34
Parag Parikh Flexi Cap Fund	63,934	30.60	15.38	24.48	21.99	19.93	12.51	0.35
Edelweiss Flexi Cap Fund	1,784	27.78	15.60	23.61	17.23	16.76	13.97	0.33
Union Flexi Cap Fund	2,051	26.78	13.85	22.57	17.94	15.42	13.63	0.30
Navi Flexi Cap Fund	251	24.39	14.20	21.86	16.48	—	13.82	0.25
HSBC Flexi Cap Fund	4,399	29.84	16.00	21.50	14.87	13.60	13.20	0.32
Nifty 500 – TRI		24.60	13.60	21.52	15.84	15.03	14.30	0.27

The securities quoted are for illustration only and are not recommendatory.
Returns are on a rolling basis and in %. Direct Plan-Growth option. Those depicted over 1-Yr are compounded annualised. Risk ratios are calculated over a 3-year period assuming a risk-free rate of 6% p.a.
Data as of May 29, 2024
(Source: ACE MF, data collated by PersonalFN)
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.

Over the past few years, Quant Flexi Cap Fund has established an outstanding track record, consistently ranking among the top performers in the Flexi Cap Fund category. The fund has consistently outpaced its benchmark, the Nifty 500 – TRI index, by a significant margin across various time frames. In the last 3 years, Quant Flexi Cap Fund has delivered a remarkable 35% CAGR on a rolling return basis, generating an impressive alpha of over 13.5 percentage points and placing it among the category toppers.

Over the longer 5-year and 7-year periods, Quant Flexi Cap Fund has outperformed the benchmark and the category average by approximately 10 and 7 percentage points, respectively, on a rolling return basis. Its short-term performance is equally remarkable, with the fund significantly outperforming the benchmark and most of its peers.

Quant Flexi Cap Fund follows an opportunistic investment strategy, which has resulted in higher volatility compared to the benchmark and is the highest in the category. Despite this, the exceptional returns generated by the fund have helped it score high on risk-reward parameters. The Sharpe ratio, which measures risk-adjusted returns, is currently among the highest in the Flexi Cap Fund category, underscoring the fund’s ability to deliver superior performance despite its higher risk profile.

[Read: Flexi Cap Funds: A Sensible Choice That’s Attracting Investors]

What is the investment strategy of Quant Flexi Cap Fund?

Quant Flexi Cap Fund is mandated to invest a minimum of 65% of its assets in equity and equity-related instruments without any limit or restrictions on market cap or sector allocation. This flexibility allows the fund to invest in a diverse 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 outlook. Quant Flexi Cap Fund focuses on the sentiments of the market participants through an in-house predictive analytical tool called the VLRT framework (Valuations, Liquidity, Risk, and Timing). The key features of this framework include:

1. Valuation Analytics: Knowing the difference between price and value

2. Liquidity Analytics: Understanding the flow of money across asset classes

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

4. Timing: Being aware of the cycles that govern how the other three dimensions interact

Quant Flexi Cap Fund emphasises identifying companies with strong and sustainable competitive advantages, solid business models, and competent management. Following an aggressive investment approach, the fund constantly looks for opportunities to generate high alpha. This often involves holding many of its stocks with a short-term view, resulting in a high portfolio turnover rate, which has ranged between 100-400% over the past year. This dynamic strategy enables Quant Flexi Cap Fund to adapt swiftly to market conditions, aiming to maximise returns while maintaining a robust risk management approach.

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

Holding in (%) as of April 30, 2024
(Source: ACE MF, data collated by PersonalFN) 

Quant Flexi Cap Fund demonstrates a distinct preference for momentum-driven stocks, setting it apart from its peers. The fund typically maintains a concentrated portfolio of around 25-40 stocks, allowing it to capitalise on high-growth opportunities and market trends effectively. This focused approach enables the fund to potentially deliver superior returns by investing in stocks that exhibit strong upward price movements.

As of April 30, 2024, the fund held 32 stocks in its portfolio with the top 10 stocks accounting for approximately 48% of its assets. Quant Flexi Cap Fund’s top stock holding comprises mainly large-cap stocks, along with a few mid-cap and small-cap stocks and includes names such as Reliance Industries, Kotak Mahindra Bank, JIO Financial Services, TCS, Samvardhana Motherson International, Adani Power, Swan Energy, etc. The fund also currently holds an allocation of around 11.2% in Derivatives – Futures for hedging purpose.

In the last two years, Quant Flexi Cap Fund has benefitted immensely from its exposure in Reliance Industries, Aurobindo Pharma, GAIL (India), Tata Power Company, LIC of India, HUDCO, Jubilant Pharmova, Chambal Fertilisers and Chemicals, Poonawala Fincorp, Swan Energy, Adani Green Energy, Adani Power, JIO Financial Services, Anand Rathi Wealth, BHEL, Punjab National Bank, Jindal Steel and Power, and Hindalco Industries, that have grown remarkably in value since the fund added them in its portfolio. Meanwhile, it has booked substantial profits in Macrotech Developers, Usha Martin, Sun Pharma, Capri Global Capital, Strides Pharma Science, The Karnataka Bank, DLF, and LTI Mindtree, among many others.

Sector-wise, Quant Flexi Cap Fund currently favours the Banking & Finance, Power, and Petroleum sectors that collectively form about 41% of its assets. It also has diversification in Construction, Infotech, Fertilisers, Auto Ancillaries, Engineering, Consumption Pharma, and Oil & Gas. The top 5 sectors account for 47% of its assets.

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

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

Quant Flexi Cap Fund has demonstrated robust growth and established an unbeatable performance track record in recent years. The fund consistently ranks among the top performers in its category across both short to long-term time frames. Quant Flexi Cap Fund’s active investment approach and the ability to timely identify high-growth, multi-bagger opportunities across market caps and sectors have enabled it to generate a remarkable lead over its benchmark and most of its category peers.

Although Quant Flexi Cap Fund frequently churns its portfolio, resulting in an elevated turnover ratio-the highest in its category (currently between 100% to 400%)-it has managed to reward investors reasonably for the level of risk taken. Additionally, the fund maintains a diverse portfolio spanning various sectors and industries, which can help it benefit from the broad economic growth.

Quant Flexi Cap Fund is suitable for investors with a high risk appetite looking for agile scheme in the Flexi Cap Fund category, provided they have a long-term investment horizon of at least 5-7 years.

Watch this video to check out the best Flexi Cap Funds for 2024:

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. Registration granted by SEBI, Membership of BASL and certification from NISM no way guarantee performance of the intermediary or provide any assurance of returns to investors.

This article first appeared on PersonalFN here