Quant MF Launches Quantamental Fund NFO – Should you Subscribe?

Quant MF Launches Quantamental Fund NFO – ReviewQuant Quantamental Fund NFO – Review

Quant Mutual Funds has launched its new fund offer – Quant Quantamental Fund that would open for subscription on 13th April, 2021. This is an open ended mutual fund scheme that follows the quant model theme. Quant model theme in simple terms is nothing but selecting the stocks based on predefined fundamental factor model.  The Quant investing model aims to remove Fund Manager bias in the mutual fund selection process. Should you invest in the Quant Quantamental Fund NFO? How do quant based mutual funds performed in the recent past?

Also Read: Want to invest in US stocks like Facebook, Google, Twitter? Invest in this fund then

Quant Quantamental Fund NFO Details

Quant Quantamental Fund would open for subscription on Tuesday, 13th April, 2021 and closes on Monday, 19th April, 2021. This is an open-ended mutual fund scheme. Here are the NFO issue details.

Scheme Opens 13-Apr-21
Scheme Closes 19-Apr-21
Scheme reopens for continuous purchase/sale Within 5 days from date of allotment
Minimum Lumpsum Rs 5,000
Minimum SIP Rs 1,000  for 6 months
NAV of the fund Rs 10 during NFO period
Entry Load Nil
Exit Load < 1 year – 1%
> 1 year – Nil
Risk Very High
Max expense Ratio (TER) 2.25%
Benchmark NIFTY 500 TRI

Download Quant Quantamental Fund SID

What is the investment objective of Quant Quantamental Fund NFO?

The investment objective of the Scheme is to deliver superior returns as compared to the underlying benchmark over the medium to long term through investing in equity and equity related securities.

The portfolio of stocks will be selected, weighed and rebalanced using a stock screener, factor based scoring and an optimal formula which aims to enhance portfolio exposures to factors representing ‘good investing principles’ such as growth, value and quality within risk constraints.

However, there can be no assurance or guarantee that the investment objective of the scheme would be achieved.

What is Quant Model Theme?

You can skip this section if you are already aware of the model theme.

This fund invests based on quant model theme. This theme driving the relative allocation will be quant Money Managers Limited (qMML) research’s ‘quantamental’ investment strategies. qMML believes that a quantitative approach to money management would yield optimal results when combined with the value of human judgement as rules or factors can behave differently when the entire market environment changes, such as our predictive analytics tools suggest.

In order to provide the best possible returns and capital preservation, the  quantamental approach goes beyond purely factor-based, smart beta or algorithmic strategies. AMC believes a rule-based mechanical approach needs to be combined with the value of years of human judgement and experience to yield ‘adaptive alpha’ – the out performance generated by an ability to adapt investment rules/factors to novel market phases.

This quantamental theme combines the innate human ability to adapt, adding to the alpha generated by discipline and identification of underlying factors – adaptive alpha, providing the edge needed to manage volatility and utilize periodic market imbalances to the portfolio’s advantage.

qMML may, from time to time, review and modify the Scheme’s investment strategy if such changes are considered to be in the best interests of the unitholders and if market conditions warrant it. No assurance can be given that the fund manager will be able to identify or execute such strategies.

The fund would select stocks basis of quantamental models from a universe of NIFTY 500 TRI.

Quantitative methods will be used for

(i) screening mechanism to choose best picks and make the stock selection universe smaller

(ii) Deciding on the portfolio weightage for better return as the investment will focus on the company’s size and liquidity.

The qualitative model which will be used for stock selection will be based on two broad parameters viz., Stock Price movement & Financial/ valuation aspects.

The model will use aspects like:

Stock Price related parameters – This would include stock specific aspects like relative strength, liquidity and volatility, Historic Performance (based on quarterly and annual relative and absolute price movement).

Financial/ Valuation parameters – This would include aspects based on a company’s Balance sheet, cash flow statement & profit & loss account. The parameters are Sales growth (Historical), Earning before Interest and tax (EBIT) & Free Cash flows. (Historical), Dividend yield, Price to book ratio (PB), Return ratios, etc.

The portfolio is reviewed on dynamic basis and changes are made based on the data generated by the model and on the discretion of the fund manager. The change in the portfolio involves both sale and purchase, both partial and complete, of the existing stocks and purchase of new stocks, if any.

What is the allocation pattern in this mutual fund scheme?

This fund investment pattern is as follows:

Type of instruments Min % Max % Risk Profile
Equity and equity related instruments 80% 100% Medium to High
Debt & Money Market instruments 0% 20% Low to medium
Units issued by REITs & InvITs 0% 5% Medium to High

Why to invest in the Quant Quantamental Fund NFO?

Here are a few reasons to invest in this fund.

1) This fund invests based on the quant model theme which is a unique model compared to existing themes.

2) The investment theme would minimize human intervention, hence emotions and fund manager biased decisions would be put aside.

Major risk factors you should consider before investing in such funds

One should consider some of these risk factors / negative factors before investing.

1) This scheme would invest in equity where portfolio construction and periodic rebalancing will be based on quant model theme. Such model is based on historic correlations of a certain set of parameters with the price movements of stocks and markets. The models may take time to adjust to new changes to the historical relationships. During such periods before the quant models adjust to new conditions, the scheme may fail to give optimal returns. Thus, investing in a theme specific scheme may involve additional risk.

2) Quant model theme investment strategies are rule-based, driven by algorithms developed basis historical relations of multiple factors with stock price movements. One of the risks in a quant-based model would be the time taken by the algorithm to adapt to new development or change in how  certain factors influence market or stock dynamics. The success of the model is based on the systematic investment approach and therefore it may not be able to leverage short term opportunities available in the market from time to time.

3) This fund might invest up to 100% in derivatives, which is high risk.

4) This fund invests some of the investments in debt instruments of corporates which is high risk.

5) This fund invests in REITs and InvITs which are high risk.

How is the past performance of Quant theme based mutual funds?

Here is the performance of mutual funds which are investing based on this quant model theme.

Fund Name 1 Year 3 Year Annualised 5 Year Annualised
DSP Quant Fund 51%
Nippon India Quant Fund 48% 9% 12%
Tata Quant Fund 35%

Should you invest in the Quant Quantamental Fund NFO?

Quant Quantamental Fund invests based on a quant model theme, i.e. Mathematical computations based on algorithms. There are only 3 funds in this category as of now. While short term investment returns look good, in the long term, this looks more like mathematical model.

Investors can give miss to such funds as of now and check for other thematic funds. You can go through our recent top performing thematic mutual funds article which can provide you some ideas around this topic.

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Suresh KP

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