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Funds following quant strategy have captured the industry's attention. Currently, the Indian mutual fund industry boasts nine quant schemes, seven of which were launched after 2020. Aditya Birla Sun Life Mutual Fund , which manages assets worth Rs 3.31 lakh crore (March 2024), is the tenth entrant in the quant arena. The Aditya Birla Sun Life Quant Fund opened to the public on June 10, 2024, and will close its subscription on June 24, 2024.
Here is the fund in a snapshot:
NFO snapshot
| Fund name | Aditya Birla Sun Life Quant Fund |
| SEBI category | Sectoral/thematic |
| NFO period | June 10-24, 2024 |
| Investment objective | Capital appreciation by investing in equity securities based on quant theme. |
| Benchmark | Nifty 200 TRI |
| Fund manager(s) | Harish Krishnan and Dhaval Joshi (dedicated fund manager for overseas investments) |
| Exit load | If the units are redeemed within 90 days from the date of allotment: 0.50 per cent of the applicable NAV. Nil thereafter. |
| Tax treatment | If the units are sold after one year, 10 per cent tax will be applicable on gains exceeding Rs 1 lakh. If the units are sold within a year, 15 per cent tax will be applicable. |
About Aditya Birla Sun Life Quant Fund
Unlike pure equity funds, which invest in stocks based on various parameters, the quantitative (quant) theme uses various mathematical models to pick stocks. Here's how Aditya Birla's new open-end equity scheme will choose stocks for its portfolio:
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Identifying stocks:
It will identify the top 75 stocks of the country's top 15 fund houses. These fund houses must have a track record of at least five years and sizeable equity assets. The fund model will exclude passive funds, asset allocation funds and discretionary model-based stocks. There will be a particular focus on large and mid-caps.
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Quality and momentum analysis:
The fund will then apply the quality factor (five-year track record) and momentum factor (consistency of last six-month returns) and analyse composite scores assigned by various sell-side analysts. This will involve looking at variables such as changes in recommendations by sell-side analysts. This process will help the fund identify 40-50 stocks.
- Weight adjustment: Equal weights will initially be allocated to all stocks and then they will be adjusted based on low volatility. A stock with lower volatility will get higher exposure, with the highest exposure capped at 5 per cent.
The scheme will be benchmarked against the Nifty 200 TRI.
Performance of quant funds
The one-year performance of these funds has been pretty stellar. But one swallow doesn't make a summer, meaning one year is too short a time to judge a fund.
So, we looked at their three-year performance. (While three years isn't a long time either, it is sufficient to at least assess their consistency. And since most of these funds are new to the market, we couldn't fetch their longer-dated performance).
Returning to these funds' three-year performance, their track record appears patchy. Only two of the five funds have outperformed the broader market (BSE 500 TRI). Please note that while most of these funds have another benchmark, we decided to use the broader market as the barometer because most of these quant-based funds have different stock-picking philosophies.
Recent performance of quant funds
| Schemes | 1Y returns (in %) | 3Y returns (in %) |
|---|---|---|
| DSP Quant | 22.41 | 11.78 |
| ICICI Pru Quant | 36.01 | 17.31 |
| Nippon India Quant | 43.5 | 22.4 |
| Quant Quantamental | 67.23 | 33.38 |
| Tata Quant | 29.14 | 13.56 |
| 360 ONE Quant | 60.32 | NA |
| Axis Quant | 35.61 | NA |
| BSE 500 TRI | 36.92 | 18.55 |
| Returns as of June 7, 2024 | ||
About the fund managers
Harish Krishnan will manage domestic allocation, while Dhaval Joshi will handle overseas investments.
Krishnan has over 20 years of experience in the asset management industry. He joined Aditya Birla Sun Life AMC in October 2023 after working as a senior fund manager with Kotak Mutual Fund for more than 10 years. At Kotak, he briefly managed their quant fund.
Funds managed by Harish Krishnan at Kotak Mutual Fund
| Fund | Category | Duration | Returns (in %) | Category average (in %) |
|---|---|---|---|---|
| Kotak Bluechip Fund | Large Cap | Jan 1, 2014 - Sep 30, 2023 | 15.72 | 12.92 |
| Kotak Infrastructure and Economic Reform Fund - Standard Plan | Sectoral-Infrastructure | Jan 31, 2015 - Sep 30, 2023 | 14.85 | 11.9 |
| Kotak India EQ Contra Fund | Value Oriented | Aug 25, 2015 - Dec 31, 2016 | 7.41 | 8.17 |
| Kotak Focused Equity Fund | Equity: Flexi Cap | Jul 23, 2019 - Sep 30, 2022 | 18.3 | 15.6 |
| Kotak Pioneer Fund | Thematic | Nov 6, 2019 - Sep 30, 2023 | 22.88 | 18.4 |
| Kotak Manufacture in India Fund | Thematic | Mar 3, 2022 - Sep 30, 2023 | 21.6 | 16.87 |
| Kotak Quant Fund | Thematic | Aug 8, 2023 - Sep 30, 2023 | 3.04 | 3.23 |
| Note: Direct plans are considered for returns and category average. | ||||
Joshi brings over 16 years of experience in equity research and investments. Before joining Aditya Birla Sun Life AMC, he was associated with Sundaram Mutual Fund and worked as a research analyst with Emkay Global Financial Services and Asit C Mehta Investment.
Our take
Quant-based funds are a relatively new phenomenon. Until now, their performance has been mixed. Over the past few years of their existence, some funds have been able to beat the broader market while others have struggled to do so. All in all, their performance is largely dependent on the quant models used by the fund houses, which is something that one will only get to know with time.
That said, if you are someone who is willing to take some risk and is confident in the quant models as a strategy, you may consider allocating a small portion of your portfolio.
Also read: Ask these three questions before investing in an NFO
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