Quant (shortened form of Quantitative) funds base their investment decisions based on mathematical models or quantitative algorithms. Mathematic models can be used to determine which stock to buy or sell, at what price or when to buy or sell, asset allocation, how to rebalance and other portfolio management strategies / tasks. Quant funds are very popular in the West, especially the United States. Nearly a quarter of all stock trades in the US comprise of quantitative or algorithmic investments.
DSP Mutual Fund launched the DSP Quant Fund about a year back. They have Rs 212 Crores of assets under management (AUM) as on 31st May 2020. Their expense ratio is 1.29%. The scheme has a rigorous quantitative approach to stock selection and portfolio construction. Beginning with the universe of companies from the S&P BSE 200 (the scheme benchmark), the scheme’s quant model filters these companies using a 3-step process:-
Though back testing result can serve as useful reference, we must reiterate here that, historical performance may or may not be sustained in the future. Since the scheme has completed a year, in rather difficult market circumstances, we analyzed the performance of the scheme in the last 1 year.
The chart below shows the growth of Rs 10,000 lump sum investment in the scheme versus the benchmark index BSE 200 TRI in the last 1 year. You can see that the scheme outperformed the benchmark.
The chart below shows the growth of Rs 10,000 monthly SIP in the scheme versus the benchmark index. You can again see that the scheme outperformed the benchmark in SIP returns.
The chart below shows the 1 month returns of the scheme versus the benchmark since the inception of the scheme. You can see that the scheme outperformed the benchmark on a fairly consistent basis. BSE 200 TRI gave negative rolling monthly returns nearly 49% of instances in the last year or so, whereas DSP Quant Fund gave negative rolling monthly returns only around 36% of instances.
The scheme has clearly outperformed the benchmark in down markets. The average monthly rolling return of the scheme in the last 1 year was 0.45% versus -2.1% for the benchmark. While the down market performance of the scheme was definitely superior, you can see that the scheme matched the benchmark in up markets. Though 1 year is a relatively short period of time to evaluate scheme performance, the rolling returns of the scheme in different market conditions provides a glimpse into the robustness of the quant model of the scheme.
Investors can allocate a portion of their portfolio to DSP Quant Fund either through SIP or lump sum with a long investment horizon. If you have a question or need guidance, our financial advisors are always on the standby to help you with your investment needs.