Quant Mutual Fund is ready to hop back on the small-cap train

Quant Mutual Fund, known for aggressive bets and shiny returns, was among the worst performers over the past 12 months, according to data from Value Research. It’s now hoping for a reversal, moving to high-beta, or high-volatility, small-cap stocks. 

“In the coming weeks and months, we will begin pruning our defensive exposure toward more cyclical and growth-oriented segments,” Quant Mutual Fund said in a recent communication to investors.

For context, the benchmark Nifty 50 is down 10% from its lifetime high of 26,216 points in September. When the cycle turns, Quant MF believes select high-beta small-cap stocks will rebound faster than the rest of the market.

“Allocations will gradually tilt in favor of very select high-beta names, particularly within the small-cap category, which are historically quicker to recover during market rebounds,” Quant wrote in its February factsheet. “Such a strategy aligns with the fund’s overarching philosophy of leveraging periods of market pessimism to build positions in high-potential areas.” 

Flight to safety

India’s 19th-largest fund house has been playing it safe of late. 

Unlike regular schemes, Quant rotates its portfolio aggressively, like a trader. It is also known to invest in high-beta small-cap stocks to get superior returns. But it had been playing safe recently by reducing its churn rate, holding more cash, selecting low-beta stocks, and holding more large-cap stocks.

According to a report by Motilal Oswal Financial Services, Quant held about 19% of its funds in cash about six months ago—the highest among domestic mutual funds. The latest data shows Quant has now started deploying money gradually and now holds only 7% in cash.

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“Quant’s performance across its 24 equity schemes has been struggling and this move to high-beta stocks can be expected to deliver a turnaround if it goes right,” said Nirav Karkera, head of research at Fisdom, a trading and mutual fund platform. 

“After this market correction, it seems like they are now willing to take a more aggressive bet, and a lot of their cash has also been deployed so far,” he added. “They are turning bullish once again and bottom-up stock picking is what they will focus on, as per my understanding.”

A new CEO

In December, Quant said it had appointed a professional chief executive to oversee its operations and decouple the CEO and chief investment officer functions held by founder Sandeep Tandon, but did not disclose the identity of its new chief. 

On 4 February, Quant announced that Tandon would join as a fund manager in key schemes such as small-cap, mid-cap, focused, large and mid-cap, and ELSS tax saver fund. Except for overnight, liquid, and gilt funds, Tandon will now act as fund manager along with a few others in all Quant schemes.

“Now that they are hiring a full-time CEO, chances are Tandon will designate himself as a proper CIO (chief investment officer) and fund manager. Earlier, he had run the day-to-day operations too, but it seems he’ll now focus on making investment decisions,” said Karkera.

Last year, Quant Mutual Fund was investigated by the Securities and Exchange Board of India over allegations of front-running. In an interview with Mint, Tandon sought to assure investors that the allegations were overblown and that the asset management company had ample liquidity to meet redemptions.

Front-running is an illegal practice where fund managers, dealers or brokers aware of upcoming large trades place their own orders beforehand to profit from an anticipated price movement when the large trade is executed.

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