Mutual Funds

Quantum Long Term Equity: BUY

Bhavana Acharya | Updated on March 02, 2014


This fund has done better than its benchmark in the long run

Staying true to its valuation strategy hasn’t helped Quantum Long Term Equity in the past year.

With no share of runaway sectors pharma and consumer non-durables, which drove last year’s Sensex rally, the fund trailed its benchmark, the TRI Sensex (Sensex returns including dividends). However, a one-year period is not fair to judge the performance of this fund.

A valuation-based strategy requires a longer timeframe to pay off as the potential in the stocks gets realised. Over a longer term, Quantum Long Term’s strategy has indeed worked.

Since its inception in March 2006, the fund has delivered an annual return of 13 per cent, above the Sensex’s 8.5 per cent.

Investors can make the Quantum Long Term fund a part of their core portfolio and hold on to it for at least five years.

Staying ahead

Taking the annual rolling return over a five-year period, the fund has kept ahead of its benchmark a good 80 per cent of the time.

The fund’s orientation towards large-cap stocks also lends stability to returns.

It is also effective at containing losses during bear markets — in the 2008-09 period, for instance, the TRI Sensex lost 4 percentage points more than the Quantum Long Term.

While the fund did lose out in the 2006-07 rally, it has picked up since, doing much better during both the market run-ups of 2009-10 and 2012.

Compared with peer large-cap funds, the fund is in the top quartile in the three- and five-year periods. Quantum Long Term hoards stocks in its portfolio for a longer period and doesn’t switch in and out of sectors or stocks.

For instance, in the past 10 months, only four stocks have been added, while it exited one. Portfolio stocks number less than 30, with the top 10 holdings making up, at times, more than half the total portfolio.

Banking, finance and software sectors have held the top sector slot between them for years.

Year 2013, though, was different, showcasing the fund’s valuation focus.

Holdings in bank stocks were cut from February last year, well before the mid-year rout in the sector’s stocks.

The share of software was similarly shorn through 2013 owing to the run-up in the sector’s prices.

Instead, the fund added to its holdings in the automobile sector through Maruti Suzuki, Hero MotoCorp and Bajaj Auto.

Plagued by dull demand, automobile stocks have been out of the market’s favour for the past several months.

Other besieged sectors that found their way into the portfolio last year include cement, infrastructure, engineering, hotels, power, and oil & gas. These sectors can see a swift pick-up once the economy turns around.

Published on March 02, 2014

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