Quantum Long Term Equity: A safe bet in uncertain times

A value investing approach, large-cap focus, low expense ratio and solid long-term record make Quantum Long Term Equity a good all-weather bet. Especially so in the current uncertain times when the demonetisation exercise in India and Trump’s victory along with the rate hike in the US are giving the market the chills.

The fund’s ability to contain downsides and do well in volatile markets was reflected again over the past month — it has gained marginally in contrast to the fall in its benchmark (the Sensex Total Return Index) and large-cap peers. This is of a piece with the fund’s superior performance during previous market downturns — between January 2015 and February 2016, the fund lost about 12 per cent, much lower than the 21 per cent dip in its benchmark.

This, coupled with healthy participation during upsides, has resulted in the fund convincingly outperforming its benchmark over long time periods — by 5 to 8 percentage points over three to five years. The winning consistency has steadily improved over the years. On a yearly daily rolling return basis, the fund beat its benchmark all the time over the past 12 months, better than the nearly three times out of four over the past five years.

Quantum Long Term Equity is also a top quartile performer in the large-cap category across time periods — it has topped the charts over the past year (18 per cent return) and also over 10 years (annualised return of 14.5 per cent). The fund may not be a chartbuster during raging bull markets, as it sticks to its value focus and abstains from momentum calls. In markets it perceives to be overvalued, cash allocations are bumped up significantly, for instance, going up to even a third of the corpus during the go-go days of 2014. This was steadily deployed during the market correction of 2015, yielding the fund rich returns with revival.

On balance, the fund has outpaced its peers over market cycles. This has also been helped by an expense ratio (1.25 per cent in the latest half year) that is the lowest in the category. This is thanks to the fund’s direct distribution model and its relatively low portfolio turnover due to a buy-and-hold strategy in a compact portfolio of 20-30 stocks.

Adept asset allocation shifts, sector rotation and stock selection have held Quantum Long Term Equity in good stead. In recent months, with the change in domestic and international dynamics, the fund has upped its cash allocation to about 10 per cent of the corpus from about 5 per cent six years ago. Almost all the equity exposure is now in large-cap stocks; debt holding is negligible. Exposure to banks, both public and private, has been raised in recent months; high cash inflows into banks due to the demonetisation exercise could help these stocks. On the other hand, the fund has cut its holdings in auto and software companies that could face challenges due to lower consumer spending domestically and protectionist policies in the US. In keeping with its value focus, the fund, in May, exited the Voltas and Maruti Suzuki stocks which delivered manifold returns over the past five years.

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