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 Multi Cap Fund that follows a quant-based investment strategy to identify attractive opportunities across market caps and sectors. Its agile investment approach has proven rewarding for investors in the scheme.

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 September 03, 2024
(Source: ACE MF, data collated by PersonalFN) 

Quant Active Fund, a Multi Cap Fund launched in March 2001 by Escorts Mutual Fund, was acquired by the Quant Group in 2018 and subsequently renamed. Initially, the fund managed its exposure across market caps dynamically, usually favouring large caps with tactical allocations to mid and small caps. Currently, it maintains balanced exposure across market capitalisations. Quant Active Fund employs a momentum-driven investment approach, continually seeking attractive investment opportunities, leading to frequent adjustments at the stock and sector levels. This strategy has generated impressive alpha in recent years, rewarding investors handsomely.

The fund is sector and benchmark agnostic, meaning its portfolio weights are guided by market outlook rather than index weightage. Although Quant Active Fund was an average performer in the past, it experienced a significant turnaround driven by its in-house risk mitigation and predictive analysis tool, VLRT. By identifying promising stocks and sectors and increasing exposure to them, the fund has achieved remarkable growth. Quant Active Fund’s success has brought it into the spotlight, with its AUM growing from Rs 2,645 crore in July 2022 to Rs 11,249 crore in July 2024.

Over the past five years, Quant Active Fund has achieved a CAGR of 35.7%, the highest in its category, compared to the Nifty 500 – TRI index’s 23.2%. An investment of Rs 10,000 in Quant Active Fund five years ago would have more than quadrupled to Rs 45,770, significantly higher than the Rs 28,399 valuation for a similar investment in the broader market.

How has Quant Active Fund performed on a rolling return basis?

Scheme Name	Corpus (Cr.)	1 Year	2 Year	3 Year	5 Year	7 Year	Std Dev	Sharpe
Nippon India Multi Cap Fund	37,151	42.92	30.47	33.24	22.02	18.64	15.00	0.44
Quant Active Fund	11,249	38.49	23.91	29.51	29.62	24.00	17.68	0.30
Mahindra Manulife Multi Cap Fund	4,417	42.27	24.19	28.16	25.57	20.91	16.19	0.33
ICICI Pru Multicap Fund	13,921	39.66	24.47	25.33	19.53	16.55	13.80	0.36
Baroda BNP Paribas Multi Cap Fund	2,690	36.94	21.05	24.86	21.55	16.63	15.39	0.31
Invesco India Multicap Fund	3,736	36.64	21.26	22.89	20.58	16.51	14.50	0.30
Sundaram Multi Cap Fund	2,831	34.00	19.09	22.62	18.60	15.95	14.64	0.26
Aditya Birla SL Multi-Cap Fund	6,198	32.75	19.31	21.20	—	—	13.71	0.29
ITI Multi-Cap Fund	1,364	45.33	26.45	21.17	20.77	—	14.61	0.31
Nifty 500 – TRI		30.30	18.06	20.09	17.94	15.62	14.36	0.26

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 September 03, 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.

In recent years, Quant Active Fund has established a strong track record and ranks among the top performers in the Multi Cap Fund category. The fund has consistently outperformed its benchmark, the Nifty 500 – TRI index in recent years. Over the last three years, Quant Active Fund has delivered impressive alpha, surpassing the index by a remarkable 9.4 percentage points on a rolling return basis and consistently ranking among category leaders. Over longer rolling periods of five and seven years, Quant Active Fund has outperformed most of its peers by a significant margin. Even in the short term, the fund stands among the top quartile performers, far ahead of the benchmark.

Following an active investment strategy, the fund’s volatility (17.68%) is higher than the benchmark (14.36%) and is the highest in the category. In terms of risk-adjusted returns, as indicated by the Sharpe ratio, Quant Active Fund has significantly outpaced the benchmark but has trailed the category average.

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

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 has the mandate 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 130-300% in the last one year.

What are the top portfolio holdings in Quant Active Fund?

Holding in (%) as of July 31, 2024
(Source: ACE MF, data collated by PersonalFN) 

Quant Active Fund usually holds 45-60 stocks in its portfolio. As of July 31, 2024, Quant Active Fund held 48 stocks in the portfolio with the top 10 stocks accounting for about 48% of its assets. It also had some exposure to Derivatives – Futures. Reliance Industries, HDFC Bank, Steel Authority of India, Swan Energy, and ITC currently form part of the fund’s top allocation. The fund’s top holding witnesses frequent changes. Only a handful of stocks, such as Reliance Industries, Aurobindo Pharma, Aegis Logistics, and HFCL have constantly found a place among the prominent contenders in the fund’s portfolio.

In the last two years, Quant Active Fund benefitted the most from its holdings in IRB Infrastructure Developers, Aegis Logistics, HFCL, Rossell India, and CRISIL. It has also benefitted from its holdings in Reliance Industries, Oracle Financial Services, Adani Power, Care Ratings, Britannia Industries, Aurobindo Pharma, Jindal Steel & Power, Granules India, Strides Pharma Sciences, LIC of India, Aegis Logistics, HFCL, Rossell India, HFCL, Honda India Power Products, among others. Meanwhile, it booked profit in Bosch, Punjab National Bank, DLF, MOIL, Bikaji Foods International, LTIMindtree, Macrotech Developers, Hindalco Industries, Graphite India, Ipca Laboratories, NMDC, Ultratech Cement, Bharat Heavy Electricals, among others.

Quant Active Fund takes active sector calls depending on the market outlook. It currently has higher exposure to Banking & Finance and Consumption, which collectively form around one-third of its assets. It also holds significant exposure to Petroleum, Pharma, and Transportation that account for another 27% of its assets, along with diversification to Metals and Power, among others.

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

Until 2020, Quant Active Fund’s performance was quite unimpressive and it failed to make a significant impact on investors. However, since then, the fund has experienced strong growth and now ranks among the top performers in its category over medium to long time frames. Quant Active Fund’s active investment strategy and skill in identifying high-potential stocks have enabled it to outperform both the benchmark and many leading peers. Its mix of mid and small-cap stocks, coupled with its ability to identify high-growth opportunities, has boosted portfolio returns, while its large-cap holdings provide stability and steady growth.

Quant Active Fund frequently churns its portfolio, resulting in a high turnover ratio of 130% to 300% over the past year, the highest in its category. Some of its trades might have led to increased volatility compared to its peers and the benchmark. Despite this, the fund has delivered notable risk-adjusted returns, although its Sharpe ratio currently trails some of its peers.

Quant Active Fund is suitable for investors seeking a dynamic scheme in the Multi Cap Fund category with a time horizon of at least 5-7 years.

Watch this video to deep dive into a parallel comparison of two popular Multi Cap Funds, namely Nippon India Multi Cap Fund and Quant Active Fund:

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