We have beaten our benchmark by 2.5% annually since inception, says Atul Kumar of Quantum MF

“When the market goes up and the stocks seem overvalued, above our limit, we sell those stocks. And in a rallying market, it is difficult to find other good stocks at our buy levels. So, at such times we sit on cash,” says Atul Kumar, Head-Equity, Quantum Mutual Fund.

Quantum Long Term Equity Value Fund has completed 13 years last week. How has the journey been?
It has been a long and fulfilling journey. We started with a small AUM base, but with the help of our track record and management we added committed investors gradually. We started many firsts in the industry, like we were the first direct-to-investor scheme, there was no entry load in the scheme; we showed total returns as the benchmark from the very beginning. All of these practices were in the interest of investors. Later, all these practices were made mandatory by Sebi for the industry as a whole.


There were also instances of underperformance for the scheme, especially when the hot money was coming. For example, there was euphoria in 2007 and 2014, but even in those times, we always stuck to discipline and that has paid in the last one decade.

This scheme is well-known for its commitment to the value style of investing. What are the challenges managing a value scheme in a market where investors chase returns?
When the markets were frothy, we underperformed. It would have looked like we were not doing well, but we were always following our practices. This was to reduce the downside which is important to us. We were comfortable following our approach and eventually our discipline paid off in the longer term. At times it looked like we are beneath those who were following the growth style of investing, in terms of chasing returns. However, we manage to tread carefully in the times of a fall. We sat on cash when the opportunities didn’t look favourable. So, it has been a little difficult but a very encouraging journey overall.

The scheme is the topper among the value fund category in 10 years. However, it is under-performing its benchmark in one and three years. Any specific reasons?
I think there are two reasons to attribute to the near-term performance of the scheme. One is that we did not own stocks in particular sectors because those sectors were relatively expensive. These stocks are still doing well but the P/Es are rising. Secondly, in the last year, we saw a very narrow rally in the market. So, a select set of stocks were contributing the rally in the Sensex. Anybody who didn’t own these stocks or was underweight on these stocks would have underperformed. So, broadly these were the two reasons for the recent underperformance.

The scheme loves to sit on cash pile when the markets turn expensive. It is sitting on around 5.8 per cent cash now. How does this strategy work?
When the market goes up and the stocks seem overvalued, above our limit, we sell those stocks. And in a rallying market, it is difficult to find other good stocks at our buy levels. So, at such times we sit on cash. Having cash in the scheme is not a tactical call, it is just a rule that we follow when the valuations are high. It is a residual of our process, not a call.

The maximum cash that is allowed is 35 per cent. There have been times when we have had a maximum of around 32 per cent cash in the scheme in 2014. It was after elections and the markets were going up very fast but the fundamentals were not strong. The P/E was looking very high and many of our stocks were hitting sell levels. That is why we were holding a lot of cash.

You have reduced the exit load on Quantum Long Term Equity Value Fund recently. The fund house was very clear even at the time of NFO that it wants to discourage frequent entry and exit in the scheme. Is there a change in strategy?
The primary reason was the feedback that we got from our investors. We got to know that the timelines were long and the loads were higher as compared to the other schemes. We wanted to make it simpler for our investors. However, the basic idea of the timelines and the exit load is to deter the buy and sell kind of strategy of investors. Our schemes are all based on the long term investment principles and we want investors to be aligned with that. There is still no change in our principles of long term investing. We have just changed the loads and timelines for the convenience of investors.

Quantum Mutual Fund investors are yet to recover from the exit of Ajit Dayal. Even now, they are discussing his exit in various mutual fund forums. What has changed after his exit or what has not changed?
Obviously, Mr Dayal has played a crucial role in setting the ethics and processes of Quantum Mutual Fund. However, to build a long-lasting institution, it was felt that there has to be a succession in place and the organisation has to move ahead of an individual. Having said that, Mr Dayal is always there to guide and mentor the team.

Do you still maintain that QLTEVF is meant for evolved investors? If yes, what kind of investors should invest in the scheme? Also, what should they expect from the scheme?
We may not be the highest return generator in the short-term. One has to measure our performance from a long-term perspective. If an investor follows this strategy, then QLTEVF can be a part of such investor’s portfolio. Basically, investors who want to build long-term wealth without taking too much risk. Since our inception, we have beaten the benchmark by 2.5 per cent annually. We can generate superior risk-adjusted returns in the long-term because of the strong processes that we have. We try to do well in all market phases. The only time we will not do well is when the market is going too high too soon.