Rankings are fleeting – Let’s learn from the Novak Djokovic fiasco
Even in the world of mutual funds, most investors consider rankings or past performance as a criterion for evaluating or comparing a mutual fund with others. While this can be a starting point for evaluating mutual funds, does it really paint the whole picture?
Quantum Mutual Fund equity fund managers share metrics to watch for when evaluating mutual funds for 2022.
“Rankings are only transitory. They don’t tell you anything about the future,” says Chirag Mehta, Sr. Fund
Manager, Alternative Investments. “With more plans being added to the industry every year, you need to look beyond mutual fund rankings or past performance to choose an appropriate stock mutual fund.
To select winning mutual fund plans, it’s important to dig a little deeper and look at other quantitative and qualitative factors. A portfolio of 5-10 diversified stock plans is ideal for taking advantage of the
benefits of diversification. The idea is to build a portfolio of consistent performers, with sensible exposure to different segments and styles of market capitalization. It is also important to be wary of risks such as portfolio concentration and portfolio turnover. If one does not have the time, inclination or resources to choose from the sea of funds on the market, one can consider investing in Quantum Equity Fund of Funds, which is a bouquet of equity funds managed by external fund companies that we research and invest on behalf of the investor. With this fund, we actively assess the performance of the underlying fund through market cycles. We also look at the level of risk, fund house philosophy, investment and research process, and portfolio characteristics, among other things, to assess the predictability of performance.
Nilesh Shetty, Fund Manager, Equities, says, “Different mutual funds perform differently in different market cycles. There are specific periods when a value fund underperforms. 2017-2019 was one of those periods. Value funds thrive in an environment of normalized interest rates and broader economic growth. The stock market could simply be riding high on short-term sentiment and liquidity, leading to stock price moves that may not align with a company’s long-term fundamentals. Compared to other styles, value funds have done much better over the past 2 years. With QLTEVF, we have been offering investors a reasonably valued, brand-true portfolio since its inception in 2006.
Rankings don’t necessarily tell the whole story. There are times like in CY 2021 for all three quarters, even when our ranking was low, we outperformed the benchmark.
Agreeing with Sorbh Gupta, Fund Manager, Equities, “We continue to have a disciplined research and investment process. We have a bottom-up approach to stock selection. From the addressable universe, we have a liquidity filter of nearly $1 million. Then we take the value and integrity screen and narrow it down to a portfolio of 25-40 stocks.
Regarding concerns about sky-high stock valuations, he says: “If you compare, the PE multiples of our portfolio are well below the index. Our portfolio is geared towards cyclicals. The portfolio includes some of the leaders in Big Banks, NBFCs, IT and Consumer Discretionary. We stress tested our portfolio every six months to ensure balance sheet strength would allow us to survive a downturn in the event of a third wave.
“Since assets are cyclical, we believe you can check out our proven 12-20-80 asset allocation strategy to diversify your portfolio and help you achieve your goals while minimizing downside risk. built up an emergency fund worth 12 months of spending in a bank savings account or liquid fund, you can invest 20% in a gold fund to diversify your portfolio, the balance of 80% can be allocated Of your equity allocation, you can invest 15% in a value fund that gives you the potential to reduce downside risk, 15% in an ESG fund that invests in companies that meet environmental, social and and 70% in a diversified fund of funds that invests in other equity funds selected after qualitative and quantitative research,” Nilesh explained.
**Please note that the above is a suggested fund allocation and should not be taken as investment advice/recommendation.
Talking about why a greater proportion is dedicated to the Quantum Equity Fund of Funds, Chirag Mehta says: “Overall, it gives you exposure to different management styles. This gives you the diversification you need when most of the money is invested in stocks. You just have one fund to invest in, one NAV to track, one folio, and you’re sorted. You don’t have to track every fund, we do it on your behalf. We seek consistency among top performers.
Speaking of ESG investing, Chirag says, “ESG is a new and emerging concept that relies on time-tested sustainability to drive returns. We have been reviewing ESG investing and building our own ESG research since 2015 as a group. We have had a fund in operation since July 2019 and it has outperformed the indices. The fund strives to achieve the triple bottom line of planet, people and profit. We have seen that sustainable businesses continue to improve over a long period of time and therefore generate the returns you are looking for. These are quality companies that have withstood shocks such as market/economic or inflationary shocks and have been able to generate long-term profits for investors. So I think ESG is likely to become mainstream globally. Even in India, there’s regulatory pressure, and there’s pressure from investors to engage with companies with a sustainability mindset. So I think this will be the future of stock investing. There is enough evidence that the investment has worked well globally and in India. Therefore, 15% of your equity portfolio can be allocated to the Quantum India ESG Equity Fund.
“Ultimately, this means you can’t rely on just one product to achieve your goals. Before finalizing your mutual fund portfolio, assess what you’re looking for? How much risk do you want to take? What time horizon Answering these questions will help assess suitable mutual funds for 2022 and beyond,” Chirag noted.
Spotlight on ET##S&P BSE 500 TRI, ##S&P BSE 200 TRI, ###S&P BSE Sensex.
Data as of January 31, 2021
Past performance may or may not be sustained in the future.
The load is not taken into account in the calculation of the returns of the diagram.
Different plans will have a different expense structure.
Returns are net of total expenses and are calculated based on the compound annualized growth rate (CAGR).
#With effect from 1 December 2021, the Tier 1 benchmark has been updated as S&P BSE 500 TRI. Since TRI data has not been available since program inception, benchmark performance is calculated using the CAGR S&P BSE 500 composite index of the PRI value from March 13, 2006 to July 31, 2006 and the TRI value since August 1, 2006.
## TRI data is not available since program inception, Tier 2 benchmark performance is calculated using the CAGR S&P BSE 200 PRI Value Composite Index from March 13, 2006 to July 31, 2006 and TRI Value since August 1, 2006 The Fund is managed by Mr. Sorbh Gupta and Mr. Nilesh Shetty. Mr. Sorbh Gupta has managed the fund since December 1, 2016. Mr. Nilesh Shetty has managed the fund since March 28, 2011.
Click here to see other funds managed by Mr. Sorbh Gupta.
Click here to view other funds managed by Mr. Nilesh Shetty.
Spotlight on ETWarning: The opinions expressed here in this article/video are for general information and reading purposes only and do not constitute any guidelines or recommendations on a course of action for the reader to follow. Quantum AMC / Quantum Mutual Fund does not guarantee/offer/disclose any indicative return on investments made in the programme(s). The Opinions are not intended to be professional guidance / investment advice / intended to be an offer or solicitation for the purchase or sale of any financial product or instrument or mutual fund shares for the reader. The article/video has been prepared based on publicly available information, internally developed data and other sources believed to be reliable. Although no action has been sought on the basis of the information provided here, every precaution has been taken to ensure that the facts are correct and that the opinions expressed are fair and reasonable at this time. Readers of the article/video should rely on information/data from their own investigations and advised to seek independent professional advice and make an informed decision before making any investment. None of the Quantum Advisors, Quantum AMC, Quantum Trustee or Quantum Mutual Fund, their affiliates or representatives shall be liable for any direct, indirect, special, incidental, consequential, punitive or exemplary loss or damage, including lost profits arising in any way whether on account of any action taken based on the data/information/views provided in the article/video.
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