Quantum Long Term Equity: The tide turns favourable for this large-cap

Not so long ago, Quantum Long Term Equity was in the doghouse. Consider this. In May 2014, when the Modi juggernaut in the market seemed unstoppable, most funds were upping bets on cyclical stocks.

Quantum Long Term Equity, on the other hand, perceiving the market as expensive, cut its equity exposure and increased cash levels to almost a third of its corpus. This continued for almost a year, even as the market was touching new highs and the fund its lows.

But with corporate earnings not picking up, the tide turned and as Bob Dylan so eloquently crooned, ‘the loser now will be later to win.’ Quantum Long Term Equity made a comeback, putting its cash to good effect to buy stocks that were getting beaten down.

It is now almost fully invested in equities with cash under 3 per cent of the corpus.

Here’s how the latest scorecard looks. Quantum Long Term Equity is among the top large-cap funds, with positive returns over the last year, unlike most peers.

Over long tenures too, the fund is a top quartile performer in the category — its annualised returns over 10 years is a tidy 14.5 per cent.

The fund has beaten its benchmark, the Sensex (Total Return Index), with outperformance in the range of 4-6 percentage points over three to five years and exceeding 10 percentage points the past year.

To be sure, Quantum Long Term Equity’s winning consistency is not the best. On a one-year daily rolling return basis, it has beaten the benchmark about three times out of four in the past five years; many peers have done better. This seems to be the trade-off for the fund sticking to its value investing conviction and not giving in to momentum calls during rallies or downsides. That said, the fund has bettered the benchmark across most market cycles. It is a good core portfolio fit for patient investors who want to play it relatively safe.

The dominance of large-cap stocks in its portfolio (currently 95 per cent), despite the leeway to go beyond, lends stability to the fund.

Its value focus means it keeps away from pharma and FMCG stocks, defensives that command big premiums. It made an exception only recently when the beaten down Cipla was added to the portfolio.

However, the fund has been stocking up on the other traditional defensive — the not-too-costly software companies, making the sector the second-largest in the portfolio, after autos, primarily three-wheelers and scooters.

The fund evidently does not discriminate between cyclical and defensive stocks in its search for value. This also leads it to risky territory — stakes in banks with bad loan troubles, such as SBI and ICICI Bank have been raised recently.

All said, the fund’s stock-picking prowess has been vindicated over the long term, with scrips such as TCS and Maruti Suzuki doubling to tripling over five years. Investors also benefit from its expense ratio (1.25 per cent as of March 2016) being the lowest among peers — a result of its no-intermediaries direct investing model.

What has also helped cut cost is a buy-and-hold strategy in a portfolio of 25-30 stocks; this keeps portfolio turnover low.

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