How many times have you heard that a prudent mutual fund house is one which knows the company in which they invest in after all the scuttlebutts in autos and local trains, has a margin of safety, trusts their instincts, does not churn much and holds them for dear life?
“Dude. That’s the ideal fund-house to give your money to.”
Do not get us wrong, this strategy has worked and will go on to work, but there is one fund house that has defied the rules of active management of investments and disrupted the mutual fund industry. Yes, you are right - It is Quant Mutual Fund.
Their investment style is almost the yin to the yan, chaos to the order of PPFAS - one of our favorite AMC - in terms of the investment strategy in India. And, the one thing that brings both of these brilliant fund houses together is their client centric, transparent approach and being true to their philosophy against all the odds. That’s why we value these fund-houses - their ability to go against the grain.
Moreover, by delivering outstanding returns for its investors and heavily outperforming the market in the last couple of years by going against the conventional fund management has raised quite a few eyebrows in the investment community. Their schemes are ranked in the top-2 in almost every category they have a presence in and their Assets Under Management have swelled multi-fold in the last couple of years or so.
But what explains this hara-kiri when it comes to their sustained outperformance of the market?
Well, to truly appreciate the fruit, it is important we understand how the seeds were sown and how it was nurtured. In plain words, let us first know about the history and the investment framework of the Quant Group.
The History and The Man With a Model
Though many think it is a new mutual fund house which has popped up on the scene, the fact remains that Quant Mutual Fund has been around since 2007 and has been one of the pioneering fund houses of our country. Pioneering?
Yes. A first of its kind investment framework. Quant Mutual Fund uses 'Predictive Analytics' - a proprietary data analytical tool which combines robust technology and multi-dimensional research and has helped them to look beyond the obvious.
Built upon a background of multi-dimensional research, they have combined the qualitative, quantitative and behavioural inputs which then throws out the stock recommendation like a magician pulls out rabbits from a hat.
Macroeconomics, market sentiments and geo-politics all have a role to play in the management of funds at the data-driven fund house. In a way, it is on a mission to vanquish the traditional uni-dimensional school of thought dominating the money management industry.
If you look at their factsheet and look carefully at the churning that happens across all the quant funds will make you question : “ Is this investing or trading?”. But that is what it is in a real sense. Just like a trader is not married to a stock and is only looking to make profit - whether it is now, tomorrow or next week. The trader will lose some money and make some, but will hope what he makes far outstrips what he loses. Simple.
And this approach stems directly from the top. It’s founder and CIO, Mr. Sandeep Tandon had spent much of his career trading derivatives, which pretty much explains the approach at Quant. Interestingly, Mr. Tandon started off working for a media publication house after which he had a stint as a proprietary trader and broker and worked at other brokerages before starting Quant Capital.
The road leading up to starting Quant Mutual Fund was full of turns. Anil Ambani led Reliance Capital and Escorts Mutual Fund shaped Mr. Tandon’s journey till the final destination of Quant Mutual Fund arrived in 2007.
Mr. Tandon has since then invested a staggering $15-16 million on data. And it is using this data that they have developed their proprietary model after years and decades of mistakes, learnings and iterations, till a process is in place. And this process enables their overarching investment philosophy to manifest in the realm of money management.
Let us see what their investment philosophy is about.
The Investment Philosophy - Being Relevant
‘Being Relevant’ is the guiding philosophy for the money managers at Quant Mutual Fund. They have a 3 pillar investment philosophy:
Active: It is the dynamic way of money management mirroring the dynamic environment. With the flux in the macro environment caused by geopolitical events and technological disruption being the only constant, they deploy active strategies in order to generate alpha. Being Relevant means to stay active.
Absolute: The fund house believes that in order to consistently outperform the market, they require complete freedom to look at the world objectively and thus, as a result, not look at it in a relative sense - irrespective of the market conditions. This brings about an absolute clarity of thought. Being relevant requires absolute focus on generating absolute returns!
Unconstrained: By not being chained by a certain philosophy, Quant Mutual Fund is ironically philosophy agnostic! They call themselves opportunists. Wherever there is an opportunity based on their framework - they will grab it. Even if no one is buying the stock and it is in a completely neglected zone , if their framework says “ Go, Buy!” , Quant MF buys with full conviction. Being open is good. Being Relevant is having an unconstrained perspective on things.
It is through these tenets, Quant Mutual Fund strives to generate maximum possible returns for its investors.
Now, here is their investment framework which helps them ‘Stay Relevant”.
Their Investment Framework - Predictive Analytics
Source: quantmutual.com
This is the core engine that drives the mutual fund house and helps them stand apart from the crowd. Their unique analytical framework enabled ‘predictive analytics ‘ works its magic across asset classes, sectors and the macros to generate top class results for the group.
Just like Abhimanyu knew how to enter the Chakravyuh but didn’t know how to exit, the conventional valuation based approach gives us an entry but not an exit! That is where Quant’s multi-dimensional approach gives them an edge, where their model signals them when to exit as well.
True to its name, Quant tries to quantify everything that affects the market via their VLRT framework, including the sentiments. This in turn helps them generate stock or sectoral ideas.
Source: quantmutual.com
Their AI and Machine Learning powered predictive analytics tool helps them be pre-emptive in the market, giving them a certain edge predicting the roll of the dice.
Quant is a self-proclaimed, unabashedly macro fund house and thus, everything starts from a global macro perspective. Here are the steps that the fund house follow in their investment process:
Run their VLRT framework model at the global level which ascertains the risk appetite and liquidity in the market by determining the flow of money in and out of equity as well as other asset classes.
Apply the same step in the Indian markets and observe if it is in the risk on/ risk off mode along with the liquidity.
If it is a Risk On Environment - Play aggressive and on front foot. Focus on generating alpha.
If it is a Risk off Environment - focus on defensive stocks/sectors. That is to play on the backfoot. Focus is on protecting the wealth. Alpha generated during the risk on mode, it is okay if the fund underperformance during the risk off environment.
Apply the VLRT framework. Basically ‘VLR’ components help in shortlisting the stocks and the ‘T’ component helps them time the market.
Unconventional Modus Operandi at ALL Levels
As we saw that one of the basic principles of the fund house is simply being unconventional! From believing that investment success cannot be only a result of a good bottom-top stock picking to having a traders mindset, Quant is also unconventional in a way that it doesn’t believe in having a ‘star’ fund manager or’ master of a sector’ analysts. The fund houses an investment team of 20 sector agnostic individuals having a rotating portfolio.
They have 3 fund managers for each fund supported by some analysts but it is their VLRT framework model that reigns supreme. Fund managers can opt to go for the stocks recommended by the model but cannot override it.
The proprietary model is refined continuously with new data being fed on a regular interval. This is where the role of analysts is paramount.
Finishing Thoughts? No. Just a Foreword
When the entire world is running after everything simple and easy, the team at quant strives to make their model complex! Talk about being unconventional!
Did you know Newton's Laws of Physics do not apply at Mercury and Einstein’s theory of Relativity fails at Singularity in a Blackhole? Some laws work for some and some don't.
Well, that’s the mantra Quant Mutual Fund is following. It’s only law is - it doesn’t have to abide by any fixed laws.
This is Quant’s way of ‘Being Relevant’!
We shall be covering the performance of the mutual fund house in the coming edition along with some more interesting insights.
To be continued.
References/Citations:
quantmutual.com