Portfolio Moves. Quantum Long Term Equity: Adding value with conviction

It was relegated to an also-ran during the go-go days of 2014 and early 2015 but came back roaring after that. Quantum Long Term Equity is now among the top performing large-cap funds with a neat 27 per cent return over the past year, way above the nearly 17 per cent return of its benchmark Sensex (Total Return Index). The fund is no stranger to being out of the market’s favour before staging a comeback. Its value investing conviction and not giving in to momentum calls has seen the fund beat the benchmark and peers over long periods, though it could lag in the short term.

Unlike many peers, Quantum Long Term Equity does not shy away from taking big cash calls when it perceives the market to be expensive. Nearly a third of its corpus was deployed in cash and equivalents during the second half of 2014, and this was gradually deployed into equities during the ensuing market correction. This yielded rich dividends. Of late too, the fund has been upping its cash quotient. From around 7 per cent in January 2016 to under 3 per cent in April 2016, cash and equivalents now form almost 12 per cent of the portfolio. Equity exposure has fallen from more than 92 per cent of the corpus to about 88 per cent now. This remains predominantly in large-cap stocks, as always. Also, the fund’s debt exposure remains negligible.

In keeping with its value focus, the fund keeps away from traditional defensives such as FMCG and pharma stocks that trade at mighty valuations. An exception was made last year when the beaten-down pharma major Cipla was added to the portfolio. This has paid off well with the stock rallying smartly from the lows of last year. The fund was stocking up on the not-too costly software stocks from 2015 until early 2016 but then has pared its stake to less than 13 per cent from more than 16 per cent a year ago.

Holdings in all three software stocks Infosys, TCS and Wipro have fallen the past year. This has helped, as these stocks have had a weak run due to concerns over outsourcing and technological challenges to business models. The fund though upped its stake in beaten-down banking stocks, both private and public sector. Here too, there was a value focus. While the under-pressure SBI and ICICI Bank were added, Kotak Mahindra Bank that had run up was pared. This too has paid off for the fund.

Overall, auto and related sectors saw a dip in the corpus representation from 22.3 per cent a year back to 21.6 per cent. But this was primarily due to the fund’s exit from Maruti Suzuki that has been on a fast drive into arguably expensive territory. Some stake was pared in Bajaj Auto and Hero MotoCorp too, but Tata Motors found increased representation. So did Exide Industries. Autos continues to be the largest sector holding, followed by software.

While there were stake changes in the stocks in the existing portfolio, only one stock (Cipla) was newly added, while three (ACC, Voltas and Maruti Suzuki) were exited.

Overall, the fund continued with its buy-and-hold strategy in a compact portfolio of 25-30 stocks. This meant a low portfolio turnover and added to the fund’s advantage of a low expense ratio, a result of its no-intermediaries direct investing model.

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