NFO Analysis: Tata Quant Fund

Tata group is known for its ethical practices. Even its mutual funds are managed ethically. Tata MF was the first, who actually side-pocketed its stressed assets. It is one of those fund houses that keep investors interest before their own interest. They have now come up with Tata Quant Fund, which is an open-ended equity scheme that follows quant-based investing theme. The fund has opened for subscription from January 03, 2020, and is open till January 17, 2020. The scheme will re-open for subscription on or before January 28, 2020.

Objective:
The investment objective of this scheme is to seek medium- to long-term capital appreciation by investing in equity and equity related securities that are selected based on a quantitative model. However, there is no assurance or guarantee that the investment objective of the Scheme will be achieved, neither the scheme assures or guarantees any returns.

Asset Allocation:

^ The scheme is said to invest at least 80 per cent in equity and equity related instruments selected based on a quantitative model

* The scheme will avoid investing in foreign securitized debt and credit default swaps, although the investment in domestic securitized debt would be restricted to 10 per cent of the net assets of the scheme.

Benchmark:
As the portfolio will comprise of stocks selected predominantly from the S&P BSE 200 index, the performance of the scheme will be benchmarked against S&P BSE 200 Total Return Index (TRI). Presently, there are three quant funds are available in the market, of which, two follow S&P BSE 200 TRI and the remaining one follows Nifty 100 ESG TRI. So, DSP Quant Fund and Nippon India Quant Fund would be its true peers. The 5-year trailing returns of S&P BSE 200 TRI is 8.30 per cent, whereas, that of Nippon India Fund is 5.67 per cent. Nippon India Fund, launched way back in April 2008, is the only old fund available.

Investment Strategy:
The investment strategy of the fund would be to achieve the investment objective by constructing a portfolio of equity and equity-linked instruments. The strategy would be to construct a diversified portfolio across market capitalization and sectors. The quant model-based factor strategy is expected to provide combined benefits of active and rule based systematic investments that minimizes the influence of human emotions and biases in decision-making with increasing discipline and attaining operational efficiency by leveraging computation power of machines.

The investment strategy of the scheme is to use the proprietary in-house quant models for optimal factor-based portfolio construction and identifying hedge positions or reduce the net long equity exposure to improve performance consistency. The quant model would be based on following parameters:

• Equity stocks selection will be predominantly from a universe of S&P BSE 200 or stocks which are part of Equity Derivative segment

• Fundamental parameters like Return on Equity (ROE) and capital employed and earnings, dividend and leverage that are also used in Factor Models.

• Macroeconomic parameters related to gross domestic product (GDP) and inflation, interest rates, currency, and commodities, etc.

• Index movements 

That being said, the above list is illustrative in nature and may include additional parameters or exclude some of the current parameters with the change in the market conditions or economic factors or situations.

The portfolio will be re-balanced monthly. However, the Fund Manager has the discretion to alter re-balancing frequency depending upon the market conditions.

Fund Manager:
This scheme will be solely managed by Mr. Sailesh Jain, who possesses an MBA degree in Finance and has a total experience of 15 years. For Tata Mutual Fund, he also manages the following funds:

 
Note: Those funds that have launched recently do not have 1-Year, 3-Year and 5-Year returns.

Our Recommendation
No doubt that the fund manager is capable of delivering good returns. However, in this case, the portfolio is going to be constructed based on the quant model, which has minimal human intervention. At present, there are only a few funds that have been working in this (Quant Fund) space. However, they have not been able to beat their benchmark in short-term nor in long-term.

Although we believe that you should invest in a fund, which has at least been through two market cycles. Also, before investing in any fund, you should check if it suits you in terms of your risk and returns. For someone being moderately aggressive to aggressive risk taker, believes that they need to further diversify their portfolio then they may consider investing in the quant fund. However, investing in a quant fund with a history would be preferable.