The Outperformance of some of the schemes is mindblowing. Quant Active Fund (Multi Cap Fund) and Quant Small Cap Fund have generated returns far in excess of the benchmark.
The spectacular rise in AUM - Quant Mutual Fund was managing about Rs. 130 crores in assets until March of 2020. The AUM has now grown by over 70 times to around Rs. 10,000 crore mark.
So how was the fund able to generate the spectacular return?
Quant Mutual Fund says it follows a ‘VLRT’ strategy, analyzing valuation, liquidity, risk, and timing. This means that the fund is not a long-term investor in many of its stocks.
The Churn Rate(Buy/Sell transaction) continued to be really high over the last 3 years. If you see the portfolios of the Quant schemes, you will observe an extremely high portfolio turnover ratio, sometimes in the order of 500-600%
On the Quant Active fund:- The companies invested in Mar 2020 were nowhere to be seen just 1 year later. The fund continued to buy/sell stock for 6-12 months. This begs the question is the fund house really investing or trading?
Therefore one thing is very very clear:- Quant MF does not have a buy and hold strategy The MF follows the strategy of chasing momentum and returns.
What is wrong with trading and not investing? As long as the fund is able to deliver returns!
Chasing returns and liquidity leads to a SIGNIFICANT INCREASE IN RISK !
Risk metric -
Standard deviation - Standard deviation measures the expected volatility in the MF. Quant Small cap has the highest volatility amongst all top small-cap funds.
The momentum strategy works really well when there is a clear trend in the market. What happens when the market has a downward bias or is volatile will only be known with time.
Conclusion - Do not chase JUST returns. Remember, risk and return go hand-in-hand. High volatility/ high risk can make the MF perform very badly in times of a bear market.
If we can help you invest, reach us on -
Email: Arpita@NiveshMitr.com
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Source: Twitter thread by Aditya Shah , ET - https://twitter.com/AdityaD_Shah/status/1560481453695127552?s=20&t=1zfHtF6qiUBcoUdz1VlGYg
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