SBI MF launches multi-factor quant fund to target momentum, quality, growth

SBI Mutual Fund (MF) on Tuesday announced the launch of SBI Quant Fund, which will take a multi-factor investment approach to allocate across the four ‘style’ baskets, which are momentum, value, quality, and growth.

 

The investment decisions will be guided by the fund house’s quant model. 

The algorithm will decide the weights for the four factors 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). 

 

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

Growth stocks are those with higher earnings growth and earnings upgrades, while value stocks have lower valuations. Quality stocks have higher return on equity (ROE), consistency in earnings growth and are low on leverage. 

For momentum, parameters like near and long term price performance is considered. 

SBI MF said the decision to take the multi-factor route was driven by its advantages over a single-factor fund.

 

“Combining multiple factors provides diversification, helping to smooth out the volatility of individual factor performance,” it said, while also highlighting its ability to reduce downside and deliver higher risk-adjusted returns. 

“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,” said Nand Kishore, MD & CEO, SBI Funds Management.

 

“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,” said D P Singh, Deputy MD & Joint CEO at SBI Funds Management.