Just in case you thought that I was a cynical person who only has negative things to say about the mutual fund industry - particularly the CEOs who head them - this may come as a surprise to you: We launched the Quantum Equity Fund of Funds in July 2009 with a view to allowing long term investors access to those equity mutual funds which are NOT managed by Quantum Asset Management Company.
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While I don't respect many of the CEOs because of their focus on the welfare of their distributors, there are many fund managers and fund management processes that - while different from what we adopt at Quantum Long Term Equity Fund - are interesting and have shown good performance over longer periods of time. So, keeping in mind the fact that these smart people will never join us - or we may never be able to afford them J - we created the Quantum Equity Fund of Funds. Click here to read the latest fact sheet.
The selection criteria
Since we are believers in investing for the long term, we used the following selection criteria to select these specific funds:
How has it, ahem, performed?
- Do they have deep investment and research teams? The larger the teams, the lower the probability that they will not rely on what the brokers and CNBC commentators tell them to do.
- Do they have dedicated fund managers for every product or fund or does one fund manager manage multiple products? If the same fund manager handles a large cap fund, a small cap fund, and a fixed income fund - chances are that he or she may be stretched in their work and cannot focus on your money which may be lying in only one of those three funds. So, a more focused fund management team is generally good for you.
- What are their research and investment criteria for building portfolios for the Fund? What is their conviction in owning - or not owning - a specific stock? Are they macro-sector investors, or bottom-up stock pickers? There is no, one correct style of investing. There is no style that is right across all time periods. But there has to be a conviction of "style" which the fund manager wants to follow - across good times (when the style works and has good results) and bad times (when the style does not work and has bad results).
- How have the funds performed over longer periods of time? We do not focus on the ranking of the Fund (number one and large size of assets have no meaning), but we focus on the consistency of the performance. Have they been ranked high across many time periods? In case they slip in performance for one quarter, we do not react and throw them out of the portfolio. We continue to observe them over time and see if something has changed in their stock picking process, in their conviction to following the style.
- Keeping in mind my love for CEOs and their wonderful partnership with the distribution channels to focus on asset growth, we also punished (with low points) those fund houses that launch multiple funds all with pretty much the same objective. Many fund houses have 5 or 10 equity funds and then they advertise how that fund got the fund house of the year award. Great, but what if you were in that mutual fund product of theirs where the fund was not doing so well? So, there are elephant funds and tiger funds and giant funds and diversified equity funds - and you shovelled your money into one of them and the other 3 did well. What a headache! You backed the correct fund house (the one with all the awards), but the wrong product.
- We also ran some portfolio analysis on how different - or similar - the underlying holdings of the individual stocks of each fund are. There is no point owning 5 different mutual funds in a "diversified" basket if they all own the same kind of underlying stocks. Part of the problem in the global financial markets which led to their collapse in September 2008 was that while many investors / banks / insurance companies owned various securities with some very exotic names, they all had the same underlying portfolio. They all had debt of US households. So when the prices of US homes stopped rising, all the "diversification" they thought they owned turned out to be a highly concentrated bet based on the health of the US property market. Similarly, it will be shame if we did all this work and then gave you a portfolio of "diversified" mutual funds and they all owned the same stocks. So, to avoid this, we take the effort of going a few layers below and ensuring that the Quantum Equity Fund of Funds does own a diversified portfolio.
- There was no "group" bias in this process. Some of you are piqued about my picking on a few groups. Well, we treated all fund houses the same way and allowed the various points and criteria to tell come up with the portfolio. But we did have one "bias": we cannot buy the Quantum Mutual Funds in this portfolio. We figured you can buy that on your own anyways! Click here to see the fact sheet of the Quantum Long Term Equity Fund
- The data for this analysis and a part of this analysis was done by PersonalFn; a financial planning company that I helped create.
- The final selection of the Funds for the portfolio and how much the Fund buys of every portfolio is a decision made by the Fund manager. I have said "we" in many places but "we" refers to the process followed by the fund manager.
Eventually, we all want the satisfaction of performance. Words are words; the proof of the pudding is in the eating.
The Quantum Equity Fund of Fund's uses the BSE 200 Index as its benchmark. Buying multiple funds which themselves have many stocks in them makes the BSE 200 Index (there are 200 stocks in it) a better benchmark than the narrower, BSE 30 Index (there are 30 stocks in it).
If, after all our fees and expenses (we pay the fees to the managers who manage the underlying mutual funds we invest in), we can't beat the BSE 200 Index - and hopefully with less wild swings (technically, referred to as volatility) - then Quantum Equity Fund of Funds is not a serious investment proposition.
Table 1: The track record of Quantum Equity Fund of Funds is good, but has still not been tested across market cycles
Data as on 31st May; Source - ACE MF;
||Absolute Returns since Inception
|BSE 200 Index (Benchmark)
Returns: Absolute. Benchmark is BSE 200 Index.
For compilation of returns the allotment NAV has been taken as Rs 10.00.
Past performance may or may not sustain in future.
Date of Inception - July 20, 2009
So, for all of you who think I hate all the mutual funds out there, here is a product which you should study, examine, and see if it meets your long term investment objectives. The Quantum Equity Fund of Funds is a product that invests in the research and investment processes.
And, by the way, we did not create this product over the weekend to "prove" that I also have good things to say about other fund houses.
The Quantum Equity Fund of Funds has been in place since July 2009.
Maybe you did not hear about it because we refused to be a part of the opaque commission structures that were followed by the CEOs of other fund houses.
Investment Objective: Quantum Equity Fund of Funds' (QEFOF) investment objective is to generate long-term capital appreciation by investing in a portfolio of open-ended diversified equity schemes of mutual funds registered with SEBI There can be no assurance of positive returns from following the stated investment strategy. Asset Allocation: QEFOF will invest in open ended diversified equity schemes of third party mutual funds registered with SEBI. QEFOF shall invest in a mix of diversified equity schemes, mid cap/small cap/large cap oriented schemes, the scheme may invest in money market instruments to meet liquidity needs. Terms of Issue: QEFOF is an open ended Equity Fund of Funds Scheme offering Growth and Dividend Options.The units can be subscribed/redeemed at the applicable NAV, subject to applicable load on all business days. Entry Load: N.A. Exit Load: On repurchase/redemption/Switch-out within 1 year from the date of allotment-1.5%. Risk Factors: All Mutual Funds and securities investments are subject to market risks including uncertainty of dividend distributions and the NAV of the schemes may go up or down depending upon the factors and forces affecting the securities markets and there is no assurance or guarantee that the objectives of the scheme will be achieved. Quantum Equity Fund of Funds, is the name of the scheme and does not in any manner indicate either the quality of the Scheme, its future prospects or returns. Scheme specific risk: Equity and Equity related instruments are by nature volatile and prone to price fluctuations due to both macro and micro factors. The Investor may lose money over short or long period due to fluctuation in Scheme's NAV in response to factors such as economic and political developments, changes in interest rates and market movement and over longer periods during market downturns. QEFOF's performance will depend upon the performance of the underlying schemes. Statutory Details: Quantum Mutual Fund (the Fund) has been constituted as a Trust under the Indian Trusts Act, 1882. Sponsors: Quantum Advisors Private Limited. (liability of Sponsor limited to Rs. 1,00,000/-) Trustee: Quantum Trustee Company Private Limited. Investment Manager: Quantum Asset Management Company Private Limited (AMC). The Sponsor, Trustee and the Investment Manager are incorporated under the Companies Act, 1956. The past performance of the Sponsor / AMC/ Fund has no bearing on the expected performance of the scheme. Mutual Funds investments are subject to market risks. Please read the Scheme Information Document(s) / Key Information Memorandum(s) / Statement of Additional Information / Addendums carefully before investing. Scheme Information Document(s) /Key Information Memorandum(s)/ Statement of Additional Information can be obtained at any of our Investor Service Centers or at the office of the AMC 505, Regent Chambers, 5th Floor, Nariman Point, Mumbai - 400 021 or on AMC website www.QuantumAMC.Com / www.QuantumMF.com
Suggested allocation in Quantum Mutual Funds (after keeping safe money aside)
||Quantum Long Term Equity Fund
||Quantum Gold Fund
(NSE symbol: QGOLDHALF)
|Quantum Liquid Fund
|An investment for the future and an opportunity to profit from the long term economic growth in India
||A hedge against a global financial crisis and an "insurance" for your portfolio
||Cash in hand for any emergency uses but should get better returns than a savings account in a bank
||Keep aside money to meet your expenses for 6 months to 2 years |
Disclaimer: Past performance may or may not be sustained in the future. Mutual Fund investments are subject to market risks, fluctuation in NAV's and uncertainty of dividend distributions. Please read offer documents of the relevant schemes carefully before making any investments. Click here for the detailed risk factors and statutory information"