until an upstart came and broke each of them – and still made pots of money. This is the story of Quant Mutual Fund, and how its risky bets—data on instinct, flows on stability, buy-sell on passively holding on stocks—have paid off so far, allowing it to run ahead of the pack. gives. And make your investors very happy.
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Take Romil Kapoor for example. Quant Mutual Fund first appeared on its radar in January 2021. The Pune-based mutual fund distributor was concerned with the fund’s performance. While the market made a strong comeback in the previous months from its Covid lows, Quant Mutual Fund outperformed its peers. “I looked at Quant’s risk-adjusted returns and that’s what interests me,” Kapoor told Mint. Kapoor then invested some money from his personal portfolio in Quant and was rewarded with an 18% return. Today, after studying the fund house carefully for some time, Kapoor recommends it to clients and stays invested personally, but has limited his exposure to 15-20%.
Something similar happened with Uday Hazarika, an underwriting professional from Mumbai, who was looking for a tax-saving fund. “I invested in Quant in late 2020 or early 2021. I noticed that they were topping the charts of Value Research (an independent mutual fund research agency) for the last three to five years. I invested around 1 lakh in his Taxsaver Fund. Since then the returns have been very good. If the performance continues, I can invest more in the future.”
Seshadri Vishwas, a Bengaluru-based HR professional, arrived in early 2022, when the stock market cycle had turned. But he says his investments in Quant have been better than those in the broader market. “I invested in Quant three months ago. The last three months have been bad for the markets, but I would say my investments have outperformed marginally even in these tough times.”
Like Kapoor, Hazarika and Vishwas, thousands of investors have been impressed by the performance of Quant Mutual Fund. The fund house topped the charts across categories in 2020 and followed it up with similar performance in 2021. Its assets under management (AUM) have become next to nothing 6,500 crore (average AUM in the period January-March 2022), largely driven by retail investors.
Attractive returns have long been considered questionable by wealth managers, financial advisors and experts in the mutual fund sector. However, through online platforms, fund houses have largely bypassed established middlemen to go directly to retail investors. The number of investor folios in its schemes increased from about 25,000 in March 2020 to around 1 million in March 2022. About 60% of its assets are in direct schemes (they have not come through mutual fund distributors).
On the investment side, the fund house went against the fund management consensus- bottom-up research and buy-and-hold philosophy. Quant Mutual Funds rely strongly (though not completely) on macroeconomic data, tracking everything from sentiment to climate change, and often make buys and sells. If it succeeds as a fund house, Quant will spark a whole school of thought among financial advisors and intermediaries.
approach
To understand Quant, you have to imagine a proprietary trader under the guise of a mutual fund. A trader is not attached to any stock and does not care about the long term. He wants to make profit in the next day, week or month. To achieve this, he repeatedly buys and sells—making money here and losing money there—in the hope that money is made on a net basis.
This business mindset of Quant comes from the background of the founder. Sandeep Tandon spent most of his career in derivatives trading and took pride in having India’s first derivatives trading in the year 2000. Tandon started his career in a leading media publication on the commercial side. He soon moved into proprietary trading and broking, especially trading in derivatives. He worked at ICICI Securities, Refo Sify Securities and Kotak Securities before launching his own firm, Quant Capital, as a broking house in 2007. From there, after some changes in avatar, Quant Mutual Fund took its present form in 2017.
But trading skills alone are not enough to outperform in the highly competitive mutual fund industry. Tandon has based the investment strategy of Quant Mutual Fund on heavy use of data. “I’ve spent about $15-16 million on data over the past 15 years. Everything we do at Quant is data-driven. There is no room for gut feeling or emotion. We also measure things like sentiment or liquidity. Our model looks at things like geopolitics and climate change. Investing success can’t just come from choosing the good old bottom-up stocks; It also requires analysis of macro variables,” Tandon said.
“After applying all of these inputs, the model tells you whether the stock is liked or hated. And we buy the hated stocks and sell the preferred ones. Ultimately the stocks mean the upside and we make money. Earn. We don’t take partial positions. We either like a stock and own it or don’t like it and exit outright. No ‘short positions’ to see what happens We act on our beliefs,” he said.
By ‘hate stock’, Tandon means mispricing certain stocks due to investor sentiments. Quant takes advantage of this false price.
Quant Mutual Fund does not believe in the traditional model of ‘star’ fund managers or analysts with expertise in particular areas. Instead an investment team of about 20 people has a ‘rotating portfolio’. There are three fund managers for each fund and the analysts are sector-agnostic. Quantitative model reigns supreme—fund managers can select stocks from the model’s recommendations, but they cannot override it. Proprietary models are refined over time – new indicators are being added and analysts focus on it. “People say keep things simple. But the world is complicated. As we add data and complexity to our models, it gets better,” Tandon said.
This, too, goes against the traditional mutual fund model of fund managers specializing in particular sectors or market segments. The unconventional approach adopted by Quant has caused much of the wealth management industry in India to stay away from fund houses, especially large distributors and family offices.
how it all started
After working in companies such as ICICI Securities and Refo Sify in the early 2000s, Tandon founded Quant Capital in 2007–08. However, after a few years of going it alone, in 2014, he allowed Anil Ambani-owned Reliance Capital to buy a major stake in his firm. It was a short-lived marriage that ended, according to sources, when the ADAG Group became interested in a banking license. Tandon bought the management of Quant Capital.
In 2017, Tandon saw an opportunity in the ailing Escorts Mutual Fund, where he had taken a minority stake a few years back. Escorts Group was not keen on growing the AMC business and Tandon started buying smaller AMCs, which had 200 crore assets under management.
“The first two years were spent solving legacy issues, hiring new people, and implementing their systems. Escorts AMC had around 14-15 offices across the country. We closed them all and decided to confine ourselves to our Mumbai head office. I wanted to operate an asset-light business,” Tandon said.
“If anyone wanted to buy our units in those years, they had to physically come to our head office in Worli or Karvy office in Mumbai. We also did not allow online subscription. It was in the middle of 2020 that we went live on the BSE Star MF platform and later on online investment apps like Grow and Paytm Money, when we showcased our performance.
“Our AUM has increased from 200 crores or so approximately at the time of acquisition 8,000 crore now. It’s all retail money. We do not advertise and do not do any marketing. Retail investors see our performance and they invest,” he added.
The fund attracted most of its investors in 2021 and rewarded them with stellar performance. Quant Small Cap Fund grew by 91.73% last year, while Quant Tax Plan grew by 63.27% and Quant Active Fund grew by 58.68%. To put that in perspective, the small cap mutual fund category grew 65.37% in 2021, the tax planning category grew 33.45%, and the S&P BSE 500 grew 31.63%. In case of Quant, AMC usually gives 2-3% outperformance which was 20-30%.
what critics say
Critics of Quant AMC focus on several issues. The first is its high churn level. Quant mutual fund portfolios are churned out several times a year, which makes it difficult to isolate a coherent investment philosophy or make any predictions about future performance. Baar Baar Manthan is also a departure from the conviction-based long-term approach followed by other AMCs.
The key question before investors is whether the performance will sustain. If Quant’s algorithm follows essentially a momentum strategy, it could fail in a bear market. Momentum investing is a strategy that selects stocks that have gained momentum in the recent past in the hope that they will continue to rise in the near future.
“In my view, a lot of the outperformance stems from high beta stocks, which generally do not outperform in the long run and hence need to be traded frequently. So far, AMC has only seen an up-move. “How it does this throughout the cycle will be the real test,” said Anish Teli, founder of QED Capital. High beta stocks are those that tend to be more volatile.
According to Tandon, however, when they focus on brainstorming, critics ignore the returns generated by Quant’s plans. He is confident that the fund house will navigate multiple cycles, pointing out that AMC moved from growth to value stocks in late 2021 and successfully anticipates a shift towards value in the market.
Another criticism is that Quant has historically invested in companies that some AMCs have avoided in the name of corporate governance. According to Tandon, this criticism is also old. Quant has done its homework, long-tracked its major holdings, such as the shares of the Adani Group, and even visited their facilities. “Some investment gurus have become devoted to their stocks. They have effectively become the promoters of those companies. I am inspired by data. I neither like nor hate any stock. I buy and sell fairly, according to what my model says.”
The third criticism is that Quant Mutual Fund runs its schemes in the same way, having similar stocks in their schemes, irrespective of the category (large cap, mid cap or small cap). “There is considerable overlap in portfolio holdings across funds as well as the top return contributors. Kaustubh Belapurkar, director of fund research, Morningstar Investment Advisor India, said it will be important that the investment process be implemented consistently, going forward, as assets continue to grow.
Tandon rubbished the allegation saying that the AMC does not rely on star fund managers but instead follows a collective approach to investments with three fund managers per scheme.
Fourth, skeptics say that as the quant gets bigger, the fund house will no longer be able to successfully implement its strategy of frequent trading. Its buy and sell orders will affect the market prices. Tandon dismissed this criticism saying that most stocks in India have sufficient liquidity and AMCs are allowed to use derivatives of up to 35% of the scheme’s assets. Derivatives such as futures and options are more amenable to frequent trades.
Regardless of their eventual performance, investors in Quant’s plans should understand that they are essentially betting on a trading house that is very different from the rest of the mutual fund industry. They may be rewarded with high returns, but they’ll have to steel themselves for a roller-coaster ride to get there.