Fund Call . Quantum Long Term Equity: Value focus holds it in good stead

The bulls seem to have again taken charge of the market, and the benchmark indices are scaling new highs. Yet, there is a strong undercurrent of volatility with a tight election fight underway, earnings growth of many companies yet to deliver to high expectations, and valuations looking stretched. In this context, a fund with a value-investing orientation seems a prudent choice. Quantum Long Term Equity Value is a good fit in this category.

Ahead of its benchmark

While the fund may lag in raging bull markets due its cautious approach, it has a reputation of containing downsides effectively, participating well in upsides and thereby delivering healthy long-term returns. The scheme’s annualised return over 10 years is about 18 per cent, placing it comfortably ahead of its benchmark S&P BSE Sensex TRI and in the top quartile among value-investing funds. Over the past year, too, the fund has weathered the volatility quite well; its return of about 6 per cent is ahead of most peers. A conservative approach has helped — the fund takes big cash calls and moderates its equity holdings when it finds the market being overvalued, and deploys the money during corrections.

For instance, cash and equivalents were upped and kept at about 20 per cent of the corpus for much of 2018; this helped the fund when volatility hit around September 2018. The cash came handy for deployment during the market weakness that followed; by end-February, the cash position had dropped to 6 per cent of the corpus, while equity position had risen to 94 per cent. The sharp rally in March though seems to have made the fund cautious again. The cash position was increased to about 10 per cent of the corpus. Besides, the fund’s equity holdings have traditionally been predominantly in large-cap stocks which generally don’t take as hard a knock in downturns as smaller stocks.

The fund follows a bottom-up stock-selection approach, and a buy-and-hold strategy in a compact portfolio of 25-30 stocks. This reduces portfolio turnover and helps keep the fund’s expense ratio among the lowest in its category.

Over the past year, the scheme has bought stakes in beaten-down stocks such as Mahindra & Mahindra and LIC Housing Finance, while exiting its holdings in Tata Chemicals and Tata Motors. The rally in software stocks such as Infosys and TCS and in banking stocks such as SBI and ICICI Bank helped the fund last year.

Among sectors, software accounts for the largest share of the scheme’s portfolio (about 16 per cent) followed by finance and auto stocks. Cement stocks were added to the portfolio last year, while the fund has exited its holdings in chemical and commercial vehicle stocks.

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