Quant Small Cap Fund has been at the top of the return charts for the past couple of years. In 2021, the device offered almost 100% efficiency. How did you ensure the performance?
This performance can be attributed to our dynamic style of money management which involves actively updating the portfolio according to existing market conditions. At quant, we believe we are in the business of “risk management” of which feedback is a by-product. Our Asset Investment Philosophy | absolute | unconstrained coupled with predictive analytics, multidimensional research and our distinct VLRT investment framework, in which we place equal emphasis on valuation analysis, liquidity analysis, and market analysis. appetite for risk, as well as an element of timing. These tools have played a central role in enabling superior performance.
The regime was bullish in sectors such as health care, consumer goods and construction. What is the strategy behind this and has it contributed to the performance?
Our analysis is macro in nature, in which we track global liquidity and risk appetite as well as cash flow analysis. Additionally, by using predictive analytics, we are able to determine if this is a risky on / off environment. It helps us assess the fear / greed of a particular asset class, region, industry or security. Using this data, we rotate sectors and strive to generate superior risk-adjusted returns. Our blended approach has helped our plans continually outperform their respective benchmarks.
Quant is relatively new to the market, and the way you manage funds is also very different from your peers. What was your experience this year in the middle of the second wave and the recovery?
We started rolling out the VLRT framework in most of our programs from September 2019 and it was rolled out to the small cap fund in April 2020. Since then we have been successful in generating superior risk-adjusted returns. This performance continued and therefore reinforced our confidence in our VLRT framework.
The fund manages Rs 1,241 crore in assets under management. It is still at an incipient stage. What are your future plans?
We are one of the fastest growing AMCs in India and all of our programs are gaining ground in their categories as they have managed to far outperform their respective benchmarks. We are a process-driven organization and believe that over time our processes will only get stronger. We will always strive to provide our investors with superior risk-adjusted returns.
How would you describe small cap investing one year after the 2020 stock market crash?
At the end of March 2020, our risk appetite indicators were picking up from decades-long lows and liquidity was very high. It’s a deadly combination for a structural bull run and that’s exactly what happened. We were able to anticipate this race and position our systems from the start so that they reap the benefits.
What is your outlook for small-cap funds in 2022 amid the possibility of a new wave of covid?
I think the markets only react to and account for an event once. In this case, the market fell sharply during the first wave; the second wave had a much smaller impact, so any new wave is unlikely to have the magnitude of the impact on the markets.
Regarding small caps, this share class has performed very well from the lows of March 2020 until July 2021. Since then, they have been in a consolidation phase. We anticipate an increase in the coming weeks. Additionally, with the return of a strong investment cycle, we see small and mid-cap stocks being the biggest beneficiaries going forward. Overall, we remain constructive on small cap stocks.
What advice would you give to new and existing small cap investors?
Given the nature of this category, small cap investing is a long-term game and investors should have an investment horizon of at least 3 to 5 years to fully maximize the opportunity.
The past year has been extraordinary in terms of returns and this should not be indicative of future returns. The easy phase of running the bulls is now over and we have entered the hard phase of running the bulls. Going forward, sector rotation will play a key role in generating Alpha. Given our dynamic approach to money management, we are well positioned to capitalize on any opportunity that may arise.