Quantum Long Term Equity: This one is for your core portfolio

This large-cap fund is a good fit for long-term investors looking for a value player

The post-Budget market correction, if it continues, will bring back to favour funds that stick to value-investing principles and don’t give in to momentum calls.

Quantum Long Term Equity has been there, done that. Many times in the past, this large-cap fund has laid low before making a comeback when the raging bulls eventually slip and trip.

The ability to contain downsides well, combined with participating well during upsides, has seen Quantum Long Term Equity beat its benchmark (S&P BSE Sensex Total Returns Index) and peers over longer periods, though it could lag in the short term.

For instance, over the past year, when the market has seen a tremendous bull run, the fund’s 12.5 per cent return pales in comparison with the benchmark’s 22.5 per cent gain and the category’s 20 per cent average return.

But over longer periods — three, five and 10 years — the fund has beaten the benchmark convincingly (by up to 5 percentage points) and figured in the top quartiles among peers. This makes it a good fit for the long-term core portfolio of investors seeking a high-quality, large-cap, value player.

Big cash calls

The relatively weak returns of Quantum Long Term Equity over the past year can be attributed primarily to its high cash levels (about 16 per cent of the corpus now) and predominantly large-cap focus (more than 80 per cent of the portfolio).

These factors, while a drag in raging bull markets, will hold the fund in good stead during market reversals.

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

From less than 7 per cent of the corpus two years back, the fund increased its cash position to 19-21 per cent until recently before moderating it somewhat last month.

This equips the fund, like in the past, with enough dry powder to snap up attractively valued, fundamentally-sound stocks beaten down in a market correction.

Bluechip slant

That the fund also restricts itself largely to bluechip large-caps helps it weather downturns much better than many peers that dabble in smaller stocks. Debt holding is negligible. A low expense ratio (1.29 per cent) in its no-intermediaries direct investing plan that was the only model offered till recently also aids returns.

The fund started offering the regular plan with sales through distributors from April 2017; but at 1.46 per cent, the expense ratio under the regular plan too is quite low, compared with peers.

The expense ratio is also kept under check by low portfolio turnover, thanks to the fund’s buy-and-hold strategy in a compact portfolio of less than 25 high-quality stocks.

Over the last year, the fund has added just one stock, the beaten-down Lupin, to its portfolio, while fully exiting four stocks that had seen a strong run — Kotak Mahindra Bank, Indian Oil, Petronet LNG and Bharti Airtel.

Holdings such as Tata Steel, L&T and HDFC have rallied strongly over the last year.

The fund largely holds cyclical stocks, the auto sector remaining the largest holding in the portfolio, followed by banks and finance companies.

The defensive stocks include the three software biggies and a couple of pharma players.

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