As a financial analyst, I’m often asked about actively managed funds that leverage quantitative analysis, also known as “quant Active fund“. Today, we’ll delve into the Quant Active Fund, offered by Quant Mutual Fund, and dissect its performance through the lens of statistics and data.
Fund Overview:
- Launched: March 21, 2001
- Investment Objective: Capital appreciation through multi-cap investing (large, mid, and small-cap)
- Current NAV: ₹609.54 (as of February 2, 2024)
- Expense Ratio: 1.79%
Past Performance:
Here’s where things get interesting. Let’s crunch some numbers:
- Since Launch (as of Feb 2, 2024): 19.68% CAGR (compounded annual growth rate)
- Benchmark (Nifty 500 Multicap 50:25:25 TRI): 16.57% CAGR
- Sharpe Ratio: 0.63 (indicates risk-adjusted performance)
- Standard Deviation: 17.77% (a measure of volatility)
- Maximum Drawdown: -24.57% (largest peak-to-trough decline)
Key Observations:
- The fund has outperformed its benchmark consistently over the long term, generating an alpha of 3.11%.
- However, the higher returns come with increased volatility, as reflected in the higher standard deviation.
- The fund has also experienced a deeper maximum drawdown compared to the benchmark, indicating the potential for larger losses during market downturns.
- The Sharpe Ratio suggests the fund has delivered decent risk-adjusted returns, but not exceptional compared to other actively managed funds.
Current Portfolio:
The fund currently holds a diversified portfolio across sectors, with some prominent names like Reliance Industries, Aurobindo Pharma, and JIO Financial Services. The sector allocation leans towards energy, metals & mining, financials, and healthcare.
Analyst’s Note:
The Quant Active Fund presents an interesting case for investors seeking active management and the potential for outperformance. However, the higher volatility and risk profile demands careful consideration. Investors should align their risk tolerance and investment goals with the fund’s characteristics before making a decision.
Remember: Past performance is not necessarily indicative of future results. This analysis is for informational purposes only and should not be considered investment advice. Always conduct your own research and consult with a financial advisor before making investment decisions.
Additional Points to Consider:
- The fund’s expense ratio is on the higher side compared to some peers.
- The fund’s turnover ratio is quite high, indicating frequent buying and selling of stocks, which may have tax implications.
- Consider alternative quant funds with lower expense ratios and different risk profiles.
Is it safe to invest in Quant Active Fund?
I cannot definitively say whether the Quant Active Fund is “safe” for you to invest in. This is because “safe” is a subjective term that depends on your individual financial situation, risk tolerance, and investment goals. Here are some key factors to consider before making a decision:
Risk:
- High Volatility: This fund has historically exhibited higher volatility than the market, meaning its value can fluctuate significantly. If you’re uncomfortable with potential losses, this may not be a suitable choice.
- Maximum Drawdown: The fund has experienced a maximum drawdown of 24.57%, meaning you could lose up to a quarter of your investment during a downturn. Are you prepared for such a loss?
Investment Horizon:
- Long-Term: The fund’s strategy is intended for the long term (5+ years) to weather market fluctuations and potentially capture its full potential. If you need your money sooner, consider a less volatile option.
Alternatives:
- Quant vs. Actively Managed: Explore other actively managed or quant funds with similar objectives but lower expense ratios or different risk profiles.
- Index Funds: Consider low-cost index funds for broader market exposure with lower fees and potentially lower volatility.
Personal Circumstances:
- Emergency Fund: Ensure you have a sufficient emergency fund before investing in any risky assets.
- Debt Obligations: Don’t invest money you need to cover essential expenses or repay debt.
- Diversification: The fund should be part of a well-diversified portfolio to manage overall risk.
What is a quant active fund?
A quant active fund, like the Quant Active Fund we discussed earlier, blends elements of active management and quantitative analysis, offering a unique approach to investing. Here’s a breakdown:
Active Management:
- Unlike passively managed funds that track an index, actively managed funds have a fund manager who selects individual stocks based on their research and judgment.
- The goal is to outperform the market by picking “winning” stocks.
Quantitative Analysis:
- This fund utilizes quantitative models and data analysis to identify potential investments.
- Algorithms based on historical data, company financials, and other factors help narrow down the stock universe.
- This approach aims to remove emotion and bias from the decision-making process.
Combining the Two:
- Quant active funds leverage both active management and quantitative analysis, seeking to outperform the market while incorporating data-driven insights into stock selection.
- The fund manager retains discretion, but their decisions are informed by quantitative models and analysis.
Key Characteristics:
- Higher fees compared to passively managed funds due to the active management and analytics involved.
- Potentially higher returns than the market, but also increased volatility and risk.
- Transparency: Some quant active funds may disclose their investment models and selection criteria, while others remain more opaque.
What is the return of the quant active fund?
the Quant Active Fund’s past returns, but that was incorrect. Here’s a table summarizing its returns across different timeframes:
| Timeframe | Return | Benchmark Return (Nifty 500 Multicap 50:25:25 TRI) |
|---|---|---|
| Since Launch (Mar 21, 2001 – Feb 2, 2024) | 19.68% CAGR | 16.57% CAGR |
| 1 Year | 46.57% | 30.60% |
| 3 Years | 31.28% | 24.44% |
| 5 Years | 28.72% | 22.76% |
| 10 Years | 23.02% | 17.03% |
Additional Notes:
- CAGR stands for Compounded Annual Growth Rate, which represents the average annual growth rate over the entire period.
- The benchmark return is the Nifty 500 Multicap 50:25:25 TRI, which is the fund’s stated benchmark.
- These are past returns and do not guarantee future results.
Who is the owner of Quant Active Fund?
The Quant Active Fund isn’t directly owned by any individual or entity. Here’s the ownership structure to clarify:
Quant Mutual Fund is the legal entity that manages the Quant Active Fund and other schemes. It operates as an Asset Management Company (AMC) regulated by SEBI (Securities and Exchange Board of India).
Quant Money Managers Limited (QMML) acts as the investment manager for Quant Mutual Fund, including the Quant Active Fund. This means they make the investment decisions for the fund based on its stated objectives and investment strategy.
Investors in the Quant Active Fund own units or shares of the fund itself, not the fund itself. They effectively own a proportional stake in the underlying portfolio of assets held by the fund.
So, while there’s no single “owner” of the Quant Active Fund, the key players involved are:
- Quant Mutual Fund (AMC): Legal entity managing the fund.
- Quant Money Managers Limited (QMML): Investment manager making investment decisions.
- Investors: Own units or shares of the fund, representing ownership of the underlying portfolio.
What are the disadvantages of quant funds?
Quant funds, while offering intriguing possibilities, do come with some drawbacks to consider before investing. Here are some key disadvantages:
Limited Flexibility:
- Reliance on Models: Decisions are primarily driven by predetermined algorithms and models, leaving less room for human judgment and adapting to unforeseen events.
- Black Box Issue: Some quant funds lack transparency regarding their models’ inner workings, making it difficult to assess their potential risks and adapt to changing market conditions.
Performance Concerns:
- Past Performance Trap: Focusing solely on historical data can make the model blind to future disruptions or shifts in market dynamics, potentially leading to underperformance.
- Herding Behavior: If multiple quant funds rely on similar models, they might make synchronized trades, amplifying market gyrations and potentially decreasing overall returns.
Cost Considerations:
- Higher Fees: The complexity of model development and maintenance often translates to higher expense ratios compared to passively managed funds.
- Tax Implications: Frequent trading within the fund, a characteristic of some quant strategies, can lead to higher tax liabilities for investors.
Additional Risks:
- Data Errors: Any inaccuracies or biases in the data used to build the models can significantly impact the fund’s performance.
- Operational Risks: Technical glitches or errors in implementing the models can lead to unexpected losses.
- Counterparty Risk: When derivatives or complex financial instruments are used, the fund’s performance becomes reliant on the counterparty’s solvency.
Remember:
Investing in any fund involves inherent risks. Carefully evaluate your risk tolerance, investment goals, and consider a balanced portfolio approach before investing in any quant fund. Consulting with a financial advisor can help you make informed decisions aligned with your financial situation.
Overall, while quant funds offer a data-driven approach with potential benefits, understanding their limitations and associated risks is crucial for making informed investment choices.
I hope this data-driven review provides valuable insights into the Quant Active Fund. If you have further questions or require more personalized advice, feel free to reach out to a qualified financial professional.