How did quant small cap fund manage to top the small cap category in 2021? Sandeep Tondon explains

Quant Small Cap has been a topper in the last few years. The scheme has offered 100% returns this year. Shivani Bazaz of ETMutualFunds spoke to Sandeep Tandon, founder & CEO, Quant Mutual Fund, to find out how the fund house managed to achieve the feat once again. Edited interview.

Quant Small Cap Fund has been on the top of return charts in the last couple of years. In 2021, the scheme offered close to 100% returns. How did you ensure the performance?
This performance can be credited to our dynamic style of money management which entails active updation of the portfolio based on prevailing market conditions. At quant, we believe that we are in the business of ‘risk management’ of which returns are a by-product. Our investment philosophy of active | absolute | unconstrained coupled with predictive analytics, multi-dimensional research and our distinct VLRT investment framework, wherein, we give equal weightage to valuation analytics, liquidity analytics, and risk appetite analytics along with an element of timing. These tools have played a pivotal role in enabling superior performance.

The scheme has been bullish on sectors like healthcare, FMCG and construction. What is the strategy behind it and has this contributed to the performance?
Our analysis is macro in nature, wherein, we track global liquidity and risk appetite along with money flow analysis. Additionally, using predictive analytics we are able to determine whether it is a risk on/ risk off environment. This helps us to gauge the fear/greed of an asset class, region, sector or a particular stock. Using these inputs we perform sector rotation and endeavor to deliver superior risk-adjusted returns. Our blended approach has helped our schemes to continually outperform their respective benchmarks.


Quant is relatively new to the market and your way of fund management is also very different from your peers. What has been your experience this year amid the second wave and recovery?
We started deploying the VLRT framework in most of our schemes from September 2019 and it was deployed in the small cap fund in April 2020. Since then, we have managed to deliver superior risk-adjusted returns. This performance has continued, thus, has reinforced our belief in our VLRT framework.

The fund manages Rs 1,241 crore worth of AUM. It is still at a nascent stage. What are your future plans?
We are one of the fastest growing AMCs in India and all our schemes are gaining traction within their categories as they have managed to handsomely outperform their respective benchmarks. We are a process-driven organisation and believe that over time, our processes will only strengthen. It will always remain our endeavor to deliver superior risk-adjusted returns to our investors.

How would you describe small cap investing in a year after the market crash of 2020?
At the end of March 2020, our risk appetite indicators were recovering after hitting multi-decade lows and liquidity was very high. This is a lethal combination for a structural bull run and that is exactly what has happened. We were able to anticipate this run and position our schemes from the very beginning in a manner such that they reap the benefits from this run.

What is your outlook for the small cap funds in 2022 amid the possibility of a new covid wave?
I believe that the markets react to and discount an event only once. In this instance, the market fell sharply during the first wave; the second wave had a much lower impact, thus, any new wave is unlikely to have the magnitude of impact on the markets.

Coming to small caps, this category of stocks have performed very well since the lows of March 2020 until July 2021. Since then, they have been in the consolidation phase. We anticipate an up move in the coming weeks. Further, with the comeback of a strong capex cycle, we see small and mid-cap stocks being the biggest beneficiaries going forward. Overall we remain constructive on small cap stocks.

What is the advice you would give to small cap investors- new and existing?
Given the nature of this category, small cap investing is a long-term play and investors should have an investment horizon of at least 3-5 years to fully optimize the opportunity.

The past one year has been extraordinary in terms of returns and this should not be indicative of future returns. The easy phase of the bull run is now over and we have entered the difficult phase of the bull run. Going forward, sector rotation will play a key role in generating Alpha. Given our dynamic approach to money management we are well positioned to capitalise on any opportunity that may rise.