Quant Mutual Funds – Invest in Best Quantitative Funds | Fisdom

Automation is setting its footprint in all aspects of life today and money management is not left far behind. One example of automation in investments or financial aspects is quant funds. In India, Quant funds are still picking up pace, but these are definitely catching the attention of smart investors. 

Many investors are of the opinion that unbiased stock selection by machines is how the investment world will shape up in the future. Some fund houses have begun experimenting with quant funds that involve algorithms for picking stocks within a portfolio. Here, we will talk in detail about Quant Funds and everything that an investor needs to know about these.

What is Quant Fund?

In a quant fund, the investment decision or stock selection is based on predetermined rules as per statistical or mathematical models. Quant funds focus on establishing automated programs to make investment decisions instead of relying on a fund manager’s ability to pick stocks while forming a portfolio. 

Unlike, quant fund managers are not entirely passive. They are often involved in the design and monitoring of the model that helps in making portfolio construction.

Why invest in Quant Funds?

Here are some of the benefits offered by quant funds:

1. Minimal human interference –

A quant fund uses a pre-defined quantitative model to select stocks. This eliminates human interference and therefore, the chances of bias in stock selection. For instance, if a fund house uses a model for stock selection based on a positive track record, it automatically eliminates stocks of companies that are highly leveraged and have volatile performance. 

2. Automated market-focused strategies-

With a quantitative model, strategies can be designed such that there is higher consistency across various market conditions. During market downturns, the fund managers of actively managed funds may exit certain investments and modify their style of investment. 

3. Lower expense ratio-

Since quant funds are somewhat passively managed, the expense ratio could be lower than the actively managed funds. For instance, DSP Quant fund has an expense ratio of 0.55% against a regular active mutual fund that could charge around 1% as expense ratio.

4. Built-in Checks to reduce inefficiency-

The models used in quant funds have built-in checks for identifying stock concentration and sector focus.

Choosing a Quant Mutual Funds

Here are some factors to consider when choosing a quant mutual fund for Indian investors:

• Performance: Look at the fund’s past performance over different time periods. This will give you an idea of how the fund has performed in different market conditions.
• Expense ratio: This is the fee charged by the fund house for managing your money. Look for funds with lower expense ratios as they can eat into your returns.
• Risk: Quant funds can be riskier than other types of mutual funds. Look at the fund’s risk profile and make sure it aligns with your investment goals and risk tolerance.
• Investment strategy: Different quant funds use different investment strategies. Make sure you understand the fund’s investment strategy and how it fits into your overall investment plan.

Who should invest in Quant Funds?

Quant funds can be ideal for seasoned investors. This is because the funds use highly specialized and sophisticated techniques for investment selection. Investors who understand stock valuation techniques will find it easier to understand Quant funds. There are also various stock-picking styles that need to be understood along with market cycles. 

Even while investing in these, experienced investors must restrict their quant fund investment to 5% of the total equity portfolio. It is advisable to include quant funds along with ETFs or other passive funds within the portfolio.

Quant funds are ideal for long-term investments. This is because the strategy may take some time to generate maximum benefits. Therefore, investors who want liquidity during favourable market conditions can stay away from quant funds.

Top Performing Quant Funds in India

Here’s a look at some of the top Quant Funds in India and their structure:

1. DSP Quant Fund

The fund excludes companies with excess debt, inefficient capital allocation or high volatility stocks. The fund evaluates companies based on factors such as quality. This is done by closely looking at ratios such as return on equity, earnings, dividend yield, etc. The company’s growth potential is gauged through estimated earnings growth. Post this analysis, every chosen stock is weighted to limit stock & sector concentration and reduce liquidity risk.

2. ICICI Prudential Quant Fund

ICICI Prudential Quant Fund has a three-layer process for stock selection. 

1. It first eliminates stocks that do not meet the requirement of the parameters set initially.
2. It then shortlists companies by looking at macro, fundamental and technical factors.
3. Lastly, it attaches a composite score to each company by allocating equal weights to every parameter and constructs a portfolio of 30-60 stocks.

3. Nippon Quant Fund

This actively managed fund selects stocks as per a proprietary system-based model. The model shortlists 30-35 stocks from S&P BSE 200 index via a screening mechanism carried out at predetermined intervals, normally quarterly. Stocks are picked based on parameters like valuation, earnings, price, momentum, and quality.

4. Quant Quantamental Fund

The Quantamental Fund uses a combination of fundamental, quantitative, predictive and behavioral analytics for selecting stocks of the portfolio. The fund invests up to 20% in overseas stocks. It uses technical indicators such as liquidity, equity flow, market breadth, volatility indices, risk appetite, bearish bets, fear index, etc while deciding on stock allocation.

5. SBI Equity Minimum Variance Fund

This fund focuses on diversification by investing in a basket of companies that form part of the Nifty 50 Index. It aims to minimize portfolio volatility. Stock selection and weightage allocation are done through a combination of risk & factor-based parameters like portfolio volatility, correlation & covariance.

6. Tata Quant Fund

Tata Quant Fund has a multi-factor investment model that uses Artificial Intelligence modules that help in changing strategies as per prevailing market conditions. The fund considers past economic data like GDP, interest rates, etc., in combination with market conditions like index returns. It adopts a machine-learning algorithm for predicting the factor combination expected to outperform in the near future. It also rebalances the portfolio periodically based on latest economic and market information.  

Investing in Quant Mutual Funds with Fisdom

Fisdom offers its investors some of the top performing quant mutual funds for investors. These can be easily accessed through the Fisdom app. To access some of the best quant funds on the Fisdom app, you simply need to:

a. Download and install Fisdom app on your smartphone,

b. Complete the easy KYC process

c. Navigate the mutual fund section for quant funds

d. Go through the fund performance and weigh the fund features against your goals

e. Select fund of your choice to invest

Conclusion

Quant funds provide an opportunity to seasoned investors for making returns by adopting statistically inclined strategies. For investors who want to consider quant fund investment, it makes sense to first study about these in detail before making a decision. 

FAQs

1. Are quant funds better?
   Quant funds are better for experienced investors who are looking for unique ways to diversify their portfolio. The statistical techniques used in quant funds can make faster investment decisions than fund managers. This helps in exploiting gains through narrow price differentials more effectively.

2. What are quant funds?
   A quant fund is an investment vehicle in which stocks are selected based on numerical data gathered through quantitative analysis. These funds fall in the non-traditional and passive category.

3. What is Quant Small Cap Fund?
   The primary investment objective of quant small-cap funds is to generate capital appreciation & achieve long-term growth through investment in a portfolio of Small Cap companies.

4. Are Quant funds actively managed?
   Quant funds are actively managed by fund managers. However, in quant funds, the fund managers heavily rely on automated statistical analysis for selecting portfolio composition.

5. Are quant funds safe for new investors?
   Quant funds may not be ideal for new investors as these require deeper understanding of the statistical models and theories used for stock selection within the portfolio. An investor must also have a good understanding of the market for investing in quant funds.