Last Updated on January 8, 2023
ICICI Prudential Quant Fund is an equity scheme that invests in equity and equity-related instruments selected based on a quantitative (quant) model. The NFO period of the fund ends on Dec 7th 2020. This is a review.
The scheme information document says the fund can invest up to 95% in equity instrument out of close to 50 % can be in derivatives. What is the quant model that will be followed by ICICI Prudential Quant Fund: It is not known. It will be based on “some” factors.
These factors are dynamic in nature! Existing factors can be removed and new factors added each year on review. Examples of these factors include macro indicators and fundamental parameters including Price to Book, Price to Earnings, Dividend Yield, Return on Assets, Analyst Rating, Earnings per share change, Interest Coverage Ratio, Analyst Ratings, Return on Invested Capital, Return on Assets. In short, everything under the sun with complete freedom to vary asset allocation at will.
As always, the pitch associated with a quant fund is “Limited Human Intervention
to avoid any biases”. The fund houses do not stop to think that such a statement compromises the function of their human-managed active funds.
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The scheme presentation offers this image as proof of concept. This is a point to point single return (100 to 879 or 425) representation. Most active funds, when compared with their benchmarks in a similar manner, would look like this!
During the 2008 crash, the model did not fare any better than then index and seems to have fallen more than the index during the 2020 crash. So at the very least, an investor who wishes to invest in this fund blind should not expect lower volatility.
The presentation also says the model has beaten the benchmark BSE 200 TRI ten out of the last 14 annual returns. This is however before expenses, particularly the steep number associated with regular plans to meet the necessary NFO AUM targets. And it has failed big: -9.9% vs 0.8 % for the index in 2018 and 2.6% vs 10.4% for the index.
In summary it makes no sense for any investor to consider ICICI Quant Fund with literally nothing known about its quantitative model.
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