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  • Tutorials All you want to know about quant funds

    All you want to know about quant funds

    Ravi Samalad & Swapnil Suvarna demystify quant funds which are relatively new to India and are yet to catch investors and distributors fancy
    Ravi Samalad & Swapnil Suvarna Nov 24, 2011

    Ravi Samalad & Swapnil Suvarna demystify quant funds which are relatively new to India and are yet to catch investors and distributors fancy

    Mumbai: Quant funds use computer based or mathematical quantitative models to invest in stocks. The human intervention is limited to the review and reshuffling of portfolio. The market size of quant funds is small in India compared to the developed markets.

    The style or approach followed by quant funds is known as ‘factors’. All quant funds follow their own in-house developed model of investing which is determined by factors like earnings estimate, price to book value, P/E, growth, value, return on equity, etc. The stock selection process is proprietary to a fund house which is back tested. These funds usually aim to outperform their benchmarks and have a concentrated portfolio of stocks.

    Investor awareness about such funds is very low as not many fund houses have launched quant funds. Quant funds are complex in nature and distributors usually don’t recommend them to their clients. However some fund officials say that the distributor interest in quant funds is growing. The commissions on such funds are usually on par with actively managed funds as they carry the same expense ratio as equity funds. The commissions on quant funds under PMS are usually higher. The minimum invest in most quant funds floated for retail investors is usually Rs. 5,000 while those offered under PMS have a minimum ticket size between Rs. 10 lakh to Rs 25 lakh. Such funds are usually targeted at HNIs. Quant funds are sometimes managed under the PMS arm of a fund house.

    Types of Quant

    Black Box: Such funds don’t disclose the method and logic of investment to investors and the past performance is the only barometer for judging the fund.  

    Indexation: This method is passive in nature. The investment mandate is based on pre defined rules which are known to investors. The portfolio is churned less frequently.

    Factor Models: Unlike indexation, these funds are managed actively. The investment methodology is based on factors which could drive stock performance.  

    Global Quant Funds

    Quant funds account for 12% ($ 7 trillion) of global AUM.  Renaissance Technologies, AHL Quant, Axa Investment Managers Quant Fund enjoy a lion’s share of quant fund assets. (Source: Edelweiss report).

    PMS Quant Funds

    ·         ING India Large Cap Quant

    ·         ING India BSE 200 Quant

    ·         ING ADAPT (active dynamic asset portfolio)

    ·         STraP by Goldman Sachs

    ·         CaPPS by Goldman Sachs

    ·         Equity Quant Strategy by SMC Capital

    As on October ING has 9, 200 clients under its PMS quant funds with combined assets of Rs. 1,600 crore.

                                          Performance

    Performance Against Benchmark Index
    Scheme Name Inception Date Corpus (Rs Cr)  Since Incp   3-Yrs   1-Yr   6-month   3-month   1-month 
    Canara Robeco Large Cap+ 20-Aug-10   185.64 Outperform   Outperform Outperform Outperform Outperform
    Edelweiss Select Midcap 29-Aug-11        2.25 Underperform         Outperform
    Pramerica Dynamic Fund 6-Dec-10   115.10 Outperform     Outperform Underperform Outperform
    Reliance Quant Plus 18-Apr-08   158.00 Outperform Outperform Underperform Underperform Underperform Underperform
    Religare AGILE Tax 15-Feb-08      11.22 Underperform Underperform Outperform Outperform Outperform Outperform
    Religare AGILE 23-Nov-07      76.56 Underperform Underperform Outperform Outperform Outperform Outperform

     

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