Portfolio management services (PMS) of mutual funds are targeting high networth individuals (HNIs) with quant-based schemes. ING Mutual Fund is planning to launch “BSE 200 Quant”, a PMS scheme for HNIs and ultra HNIs. The minimum investment will be Rs 20 lakh. It had launched another quant fund in February.
Selection of stocks in case of quant funds is based on mathematical models. For example, Benchmark’s PMS product, called STrap, or Systematically Traded Portfolio, has a quantitative model based on a tactical asset allocation programme. Under the assumption of a mean reversion, equity exposure under the scheme is raised at lower prices and reduced at higher prices.
Some mutual funds also have quant schemes for small investors. Reliance Mutual Fund has a quant-plus fund, while Religare Mutual Fund has AGILE (Alpha Generated from Industry Leaders) fund. Reliance’s fund has managed to perform reasonably well, having posted returns of 25.95 per cent in the last one month, but Religare’s AGILE has significantly underperformed by returning only 8.49 per cent. This is much lower than returns from equity diversified funds, which have given 29.5 per cent returns in the last one month.
“We chose 20 stocks from the Nifty universe, based on fundamentals, valuations, momentum and quality of management. We built a quantitative model based on these parameters which was back-tested for the last 10 years. Every Friday, screening is done and we take a call to buy or sell a certain stock,” said Kishan Daga, fund manager, Reliance Quant Fund.
Considering that quant strategies are sophisticated for an average investor, collections have not been exceptional. Reliance’s Quant Plus has assets under management of only Rs 36.71 crore, while Religare AGILE has assets worth Rs 120.17 crore.
Distributors warn common investors against such funds. “Quant funds are complicated products. The process followed by them is difficult to understand, hence, neither we recommend nor many retail investors buy these products,” said a distributor.