SBI MF's new Quant fund targets momentum, growth & value for better returns

SBI Mutual Fund on Tuesday launched a Multi-Factor Quant Fund targeting four key factors: growth, value, quality, and momentum. Growth stocks exhibit high earnings growth, while value stocks are undervalued. Quality stocks show high returns on equity, stable earnings, and low debt. Momentum stocks are selected based on price performance. 

 

SBI MF chose this multi-factor strategy for its ability to combine the strengths of multiple factors, potentially offering better returns compared to funds focused on just one factor. This approach aims to create a more diversified and balanced portfolio.

 

The scheme aims to generate long-term capital appreciation by investing in equity and equity-related instruments selected based on an in-house quant model. The fund’s benchmark is the BSE 200 TRI. 

 

According to the fund house, the model will identify stocks as momentum, value, quality, or growth based on data.

 

• Launch period: The New Fund Offer opens on Wednesday, December 4, 2024, and closes on Wednesday, December 18, 2024
• Strategy: A multi-factor active fund focusing on Momentum, Value, Quality, and Growth, using an objective, rule-based approach for portfolio construction, guided by an in-house quant model.
• Portfolio Allocation - Primarily invests in equity instruments selected using a rule-based quantitative model, along with other permissible securities for diversification
• Benchmark -BSE 200 TRI
• Fund managers: Sukanya Ghosh and Mr. Pradeep Kesavan (dedicated fund manager for overseas securities)
• Factor-based investing: Thi  involves selecting securities based on certain characteristics, or "factors", that historically linked to higher returns.
• This is the first-ever quant fund by SBI Mutual Fund, which manages assets worth Rs 11 lakh crore, and marks its entry in the quant space.

 

Relying on a single factor for investment can be risky due to market cycles, as no single factor consistently outperforms. SBI Mutual Fund’s new multi-factor strategy aims to balance the strengths and weaknesses of growth, value, quality, and momentum factors to reduce risk and enhance returns. The fund will invest in the top 200 companies by market capitalization, with stock selection based on these four factors. It will be large-cap and mid-cap focused, with a benchmark against the BSE 200 TRI index. 

 

The fund would predominantly invest 

• a) 80%-100% of its assets in Equity and Equity-related instruments selected based on a quantitative model, with the balance assets as per the following allocation:
•  b) 0 – 20% in Equity and Equity-related instruments of companies other than above
•  c) 0 – 20% in Debt and Debt-related instruments (including securitized debt {upto 20% of the debt portion of the scheme} & debt derivatives) and money market instruments including tri-party repos 
• d) 0 – 10% in Units issued by REITs and InvITs, with the exposure in line with SEBI limits specified from time to time. 

 

The scheme shall invest in units of mutual fund schemes (including domestic & overseas ETFs) upto 20% of the net assets of the scheme. The fund may also seek investment opportunities in foreign securities including ADR/GDR/Foreign Equity, Overseas ETFs and Debt Securities subject to regulations. Such investment may not exceed 35% of the net assets of the scheme and will be in line with the maximum limits available from time to time. For more details on the asset allocation, please refer to the Scheme Information Document.

 

"Multi-factor investing combines various factors rather than focusing on a single one, helping to smooth out the cyclicality of returns and reduce behavioural biases in factor selection. Our SBI Quant Fund, based on an in-house multi-factor model incorporating Momentum, Value, Quality, and Growth factors, provides a strategic opportunity for investors to diversify their portfolios with an aim to achieve superior risk-adjusted returns," said Nand Kishore, Managing Director & Chief Executive Officer, SBI Funds Management Limited.

 

The algorithm will decide the weights for the four factors-momentum, value, quality, and growth- depending upon the relative performance. The weight of the better performing factor will go up with time at the expense of other factors.

 

However, the allocations will be brought back to equal weight of 25 per cent each once the weight of the outperforming factor reaches the upper band (35 per cent). The rebalancing can also be triggered by the worst performing factor if it reaches the lower band (-8 per cent).

 

"“The SBI Quant Fund is for those investors who believe in the India growth story and want to invest in equity with the benefit of periodic reviews through a rule-based investing framework. By integrating established equity factors, each with distinct risk/return profiles, the fund aims to deliver optimal risk-adjusted returns and minimise behavioural biases. The SBI Quant Fund utilises an in-house multi-factor model, incorporating factors such as Momentum, Value, Quality, and Growth to optimize performance across various market cycles," said D P Singh, Deputy MD & Joint CEO, SBI Funds Management Limited.