Mutual Funds

Quantum Long Term Equity (Quantum Equity): Buy

K Venkatasubramanian | Updated on September 14, 2014

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The fund’s ultra-low costs and excellent track record make for a great package

Investors looking for a proven performer across market cycles and superior returns over the long term can buy the units of Quantum Long Term Equity (Quantum Equity). The fund has consistently delivered market-beating returns.

Over one-, three- and five-year timeframes, the fund has outperformed its benchmark, the Sensex Total Return Index. The margin of outperformance has been 4-12 percentage points. The TRI Sensex includes the dividends distributed by companies and is therefore a more rigorous benchmark than the Sensex itself.

Quantum Equity has mostly remained in the top quartile of funds. A value-based approach to investing has been adopted by the scheme, with a predominantly large-cap bias. Only for very high-quality names such as HDFC and TCS does the fund allow for premium valuations.

It takes heavy cash positions during the periods when markets run up too quickly or if there are very limited value picks available. While this provides adequate protection against losses, the fund may not be first off the block in a rally. But sooner or later, it catches up.

The fund is fit for the core portfolio of investors with moderate risk appetite. Exposure to the fund can also be taken in the form of a SIP (systematic investment plan) for the long term.

Portfolio and strategy

Quantum Equity adopts a ‘buy and hold’ strategy. In the last one year, it has entered afresh or exited very few stocks. The fund maintains a compact portfolio of 25 stocks.

The limited churn in the fund has meant that the expense ratio is just 1.25 per cent, among the lowest in the industry.

Exposure to individual companies is restricted to well under 5 per cent of the portfolio, except in the case of two-three stocks. Large-cap stocks (greater than ₹7,500 crore in terms of market capitalisation) currently account for almost its entire portfolio.

In terms of sectors too, there is a fair degree of stability. Compared with most other funds that have banking as their top sector, Quantum Equity relies on auto and software.

It has been a beneficiary of the rally in auto stocks in the last one year as also sectors such as gas, power and construction — segments it consistently bet on.

Quantum Equity takes substantial cash calls, especially during volatile markets. It currently holds over 31 per cent in cash and cash equivalents.

For the past one year, the proportion of cash and cash equivalent in the portfolio has been around 15 per cent.

The fund house generally does not believe in pushing its product through distributors. Investors can buy units directly through the AMC’s website or its offices in select cities.

Published on September 13, 2014

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