Quantum Long Term Equity: Bet on this value player

The fund suits investors looking for a high-quality, large-cap, value player

Its value investing conviction has often seen Quantum Long Term Equity take a contrarian approach and abstain from momentum calls.

Unlike many peers, the fund does not shy away from taking big cash calls when it perceives the market to be expensive.

This leads to short-term underperformance but the fund invariably makes a strong comeback when the market corrects and the dry powder is gradually channelled into equities.

For instance, the fund deployed nearly a third of its corpus in cash and equivalents in late 2014; it was in the market doghouse for quite some time but gained strongly thereafter and topped the charts in its large-cap category during the eventual correction and subsequent recovery. Over the last year too, with the market on a roll, the fund has been upping its cash quotient.

From just about 6 per cent a year ago, the allocation to cash and equivalents has risen to nearly 18 per cent now.

Understandably, the one-year performance has been underwhelming — the fund’s 14.5 per cent return is a tad lower than the 14.7 per cent posted by the benchmark S&P BSE Sensex (Total Return Index), and it is also in the bottom quartile in the category.

But if last week’s market correction is an indicator, the fund may again have read the tea leaves right and could well have the last laugh.

Near-term blips notwithstanding, Quantum Long Term Equity is a clear winner over the long-term, beating the benchmark convincingly (by 4-6 percentage points) and figuring in the top quartiles in the category over 3, 5 and 10 years.

Low expense ratio

The fund is a good core portfolio fit for patient investors who seek a high-quality, large-cap value fund.

The ability to contain downsides and participate strongly in recoveries helps the fund deliver well in the long term.

What also helps returns is a low expense ratio (1.25 per cent), a result of its no-intermediaries direct investing plan that was the only model offered till recently. From April 2017, the fund has also started offering the regular plan with sales through distributors; at 1.43 per cent, the expense ratio under the regular plan is also quite low compared with peers.

The fund follows a buy-and-hold approach in a compact portfolio of 25-30 stocks, keeping its portfolio turnover low.

Over the last year, the fund added just one new stock, pharma major Lupin that had been beaten down, while fully exiting four stocks Kotak Mahindra Bank, Maruti Suzuki, Indian Oil and Petronet LNG that had rallied handsomely.

Big gainers in the portfolio in the last year include Tata Steel and PTC India.

Nearly all the stocks in the portfolio are large-caps, lending stability to the fund. Debt holding is negligible.

Despite paring some stake, the auto sector is the fund’s largest holding, followed by software and banks.

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