The Hindu Business Line : Quantum Long-Term Equity Fund: Hold

Quantum, with its value investing style, is clearly for investors with a long-term investment perspective, especially as undervalued stocks take time to deliver.

Investors can retain their units in Quantum Long-Term Equity Fund (Quantum). Since its launch in March 2006, the fund has witnessed a predominantly volatile market. Staying in cash for the first couple of months has, however, shielded it from the sharp declines that other diversified funds suffered over the same period.

Quantum Long-Term Equity is a diversified fund that seeks to follow a value investing style. While many diversified funds moved towards cash and cash equivalents over the May-June period, Quantum appeared to have found a number of investment opportunities. This is evident from the gradual shift from a 34 per cent equity holding in March 2006 to about 82 per cent in July.

Performance: Quantum has returned a negative 1.3 per cent since inception till July 2006 as against the benchmark Sensex's total return index (TRI) of 0.7 per cent. The fund has since moved to positive ground. It may be too early to compare the same with the performance of established equity schemes as the fund has recently propped up its investment in equity.

Suitability: Quantum is clearly for investors with a long-term investment perspective. For one, the value investing style would definitely require investors to be patient as the strategy normally warrants picking stocks that are undervalued and take time to deliver.

Two, although open-ended, the fund clearly wishes its investors to stay for a longer time-frame, as is evident from the high load it charges for exiting prematurely.

Three, the fund has clearly spelt its willingness to stay in cash (up to 35 per cent, against a maximum of 20 per cent in most other diversified funds) unless it identifies stocks that satisfy its parameters. This could mean that over a short period it may well trail peers that are fully invested.

Quantum seeks to invest in stocks that are typically included in the BSE-200 and also have high liquidity. Of the total allocation to equity in July, about 50 per cent was invested in stocks with weekly average trading volumes of over two lakh shares.

Aventis Pharma and ING Vysya were the only stocks in the portfolio that had average volumes of less than 10,000 shares. Hence, this fund may not be the best fit for investors looking for exposure to mid-cap stocks, a number of which encounter liquidity issues.

Portfolio: Banks, auto and software are the top three sectors in Quantum's allocation. GAIL (India), Hindustan Petroleum and ONGC are some of the high-dividend yield stocks. Interestingly the fund has no exposure to themes such as capital goods or construction, which currently find favour with a number of diversified funds.

Of the total exposure to equity over 85 per cent of the assets are invested in stocks with a market capitalisation of over Rs 2,000 crore. Quantum does not have distributors and markets its product directly.

While it does not charge an entry load, exit loads range from 4 per cent for redemption within six months to 1 per cent if redeemed between 1.5-2 years. Mr I.V. Subramaniam manages the fund. The NAV per unit is Rs 10.80.

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