Quant mutual funds that are typically for savvy investors i.e. investors with know how on macros and those who wish to earn more by betting on specific stocks in comparison to regular equity funds and even can afford to take risk with ease.
Among them, DSP Quant Fund i.e. the largest among the category also provided the maximum gain of 19% in the year 2020. This is almost double than that of the benchmark indices i.e. in comparison to both Nifty and Sensex. Typically, in case of such funds, Quant funds employ artificial intelligence in the selection of stocks and funds. o Co
Now details on the fund as fetched from Moneycontrol website:
Fund size: Rs. 447crore
NAV as on December 4, 2020: 12.879
Expense ratio: 1.3%
Fund allocation: The fund's corpus is allocated 68 percent in large caps and the rest is in mid-cap stocks.
Returns: A double digit return from the fund in a highly disruptive year is primarily on account of fund's focus on sector diversification. "Remaining diversified across sectors and factors, not chasing momentum and staying low volatility has helped keep up a consistent performance", said Karnik-the head of risk and quantitative analysis at DSP Investment Managers Pvt. in Mumbai.
Also, the fund has been overweight on sectors such as pharma and IT that have outperformed. A "tilt towards high quality names" in sectors other than tech and healthcare also helped the fund's performance, Karnik said.
Besides as indicated on the fund site, the annualised return from the fund has been 33.24 percent, which is way higher than S&B BSE 200 return of 26.82 percent. Further the returns are higher than even Gold and NIfty which during the same time have return 26 and 24 percent, respectively.
Holding: Top 10 stocks in the portfolio of the fund include HDFC, HDFC Bank, Bajaj Finance, HDFC Life Insurance, Bajaj Finserv, Infosys, TCS, HCL, Tech Mahindra and Voltas. Further of the 100 biggest companies, the fund by default eliminates those with high price volatility as well as those giving red flags when under forensic accounting.
And then the system considers stocks on parameters giving weightage of of 40% each to quality and valuation, and 20% to growth. The highest scoring stocks are included in the portfolio, which is rebalanced every six months.
Can the momentum of good returns in Quant Fund sustain?
Now as the Vaccine led optimism has given provided momentum to value stocks, as is the case now where such funds have underperformed benchmark indices in the quarter, there is a doubt on whether the sharp run up seen in the year's time in DSP Quant fund or quant fund in general may sustain or not?
"There is no precedence for the current environment: uncertainty is very high and predictability is very low," said Ashutosh Bhargava, who manages the Nippon fund. "If I have to choose a couple of factors which will do well in 2021, I would say value and sentiments may do slightly better than quality, low volatility and momentum."
Rupal Agarwal, a quantitative strategist at Sanford C. Bernstein in Mumbai on the other hand said with remarkable performance of this category of fund amid the pandemic, there is likely to be a robust growth. "It used to be seen as something of a blackbox where people don't understand how it works," she said. "Now fund houses can refer to how the category has done well in a Covid year, which makes their pitch stronger."