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

Despite stock market conditions being not too conducive, Quantum Long Term Equity Fund has managed a reasonable return record in the two years since its launch. With an absolute return of about 27 per cent till date, the fund isn’t a top performer, but has bettered the category average for diversified equity funds. It has been quite good at handling choppy or declining markets, though its performance in the secular bull phase of 2006-07 wasn’t exceptional. Investors in the fund can hold their units.

Suitability: As a diversified equity fund with a large-cap bias (average portfolio market capitalisation Rs 15,000 crore), Quantum Long Term Equity is positioned as a vanilla equity fund targeted at an investor’s core portfolio. The fund draws its stocks entirely from the BSE 200 basket, with over two-thirds of the corpus consistently deployed in large-cap stocks (market capitalisation of Rs 7,500 crore or more). The fund’s mandate allows it to hold higher cash positions to defend against sharp market reversals. The fund benchmarks itself to the BSE 30 Total returns index, so that dividends and other inflows are also factored into the market returns used to measure fund performance. These features lend it a lower risk profile than many of its peers.

Performance: The fund’s compounded annual return of about 9.6 per cent since launch (March 2006) matches the returns generated by bellwethers such as the Sensex and the Nifty. Diversified equity funds, as a class have averaged a 5.4 per cent return over the same time frame. Though the fund’s performance has been reasonable, it hasn’t been exceptional. There have been peers who have managed a better showing over this period. Of these, DSP ML Top 100 (14.5 per cent return), HDFC Growth (14 per cent return), Birla Sun Life Frontline Equity (14 per cent) are a few with a good long-term record.

The fund’s reasonable performance to date also owes much to its adept handling of the recent market falls. Its year-to-date decline of 26 per cent in its NAV is far ahead of the category average for diversified funds (36 per cent). The fund is also among just a handful to contain its declines to levels well below that of bellwether indices (the Sensex sports a year-to-date loss of 31 per cent). The fund’s ability to contain downside may be a valuable attribute in the Indian context, where actively managed funds usually have trouble keeping ahead of the indices in a falling market. The fund’s ability to contain downside appears to be owed largely to its conservative stock selection, with a bias towards large cap stocks and a diversified sector profile. Software, private banks and oil and gas have been among the top sector weights in recent months.

A small asset size has also enabled a compact portfolio with relatively little need for frequent churning amid volatile markets. Though the fund has a mandate of taking cash calls to guard against market declines, this has been used sparingly in recent months. The fund has, in fact, remained invested to the extent of 95 per cent or more at every month-end since January 2008, after carrying a larger cash position in the final months of 2007.

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