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

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.

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