Mutual Fund Analysis: Quantum Long Term Equity

I think it is safe to say that March has been a good month for all our equity portfolios. Most of our (larg cap?) holdings would have posted a good increase in value.

Among my funds, Quantum Long Term Equity emerged as a strong winner this month. When I went to Value Research to check its performance, I was in for a surprise.

Here is the performance in the last month. Clearly, it has outperformed its benchmark Sensex Total Returns Index

qlte-1

Source: Value Research Online

However, if you observe the performance in the past year, it is clear that the fund has underperformed but has managed to get its act together in the last few months (see 6m option).

qlte-2

Thankfully, the underformance is only recent. Over 3Y, 5Y, 7Y periods the fund has always outperformed its benchmark. Here is the 3Y graph.

qlte-3

Using the mutual fund returns analyser, we can find returns for SIP and lump sum investments for the past 1,2,3,4,5,6,7 year periods.

qlte-4

That is remarkably consistent!

Using the automated rolling returns calculator, we can gain additional insights. (Click here to understand how rolling returns are calculated)

Here are the 1Y rolling returns.

qlte-5

Generally, over 1Y durations active funds don’t manage to beat the index significantly.

However, notice the outperformance around mid-2010. This corresponds to investments made in mid-2009 when the market was still struggling in the aftermath of the 2008 crash.

This suggests that QLTE has an excellent downside protection strategy. If you look at its portfolio history from Morningstar it has significant allocation to ‘cash’ or liquid debt in its portfolio. In 2010 this amounted to 19%. Quite high for a ‘multi-cap’ diversified equity fund!

So to some extent, its downside protection originates from the fund manger moving to cash when he feels the marker is overvalued, thereby preserving gains. Sometimes the fund could miss a rally if the cash allocation is high. However, the proof of the pudding is in the eating and so far, it has tasted excellent!

Here are the 3Y and 5Y rolling returns.

qlte-6

3-year rolling returns

Notice the recent dip in performance and the quick recovery.

Quantum Long Term Equity Rolling Returns 5Y
5-year rolling returns

Risk, return and volatility measure

Upside/Downside Captures: According to morningstar, QLTE has 'captured' about 93% (97%) of  its benchmarks positive performance over a 3 year(5 year) period. Although this is far spectacular the fund has managed to capture only 67% of its benchmark negative performance over a 5 year period. This is spectacular. In a nut shell that is QLTE for you: good returns with excellent downside protection.

QLTE has a Sharpe ratio(*) of 0.97 compared to the large cap category average of 0.63. This means QLTE offers much better risk adjusted return. That is it has take lower risk for achieving returns.

* Sharpe ratio is the extra return generated for extra upside and downside risk (extra being measured wrt risk-free insrument)

QLTE has a Sortino ratio(#) of 2.21 as against the large cap category average of 1.28. This means harmful volatility is QLTE is much lower. The probability of large losses is nearly 50% lower over 5 year periods.

# Sortino ratio is the extra returned generated for extra downside risk

QLTE has an astounding 5 year alpha of 7.63 against a category average of 0.54!

For the same period it has a Treynor ratio($) of 24.33 against a category average of 14.32

$ Treynor ratio is simply a measure of reward/volatility. A high value typically implies low volatility.

These are some excellent figures. If you would like to understand these in a simple way, try this: Visualizing Mutual Fund Volatility Measures

Great! Now, what about the 50 Crore net worth stipulation?

Recently SEBI has raised the minimum net worth of an AMC from 10 Crores to 50 Crores.

This means AMCs like Quantum, PPFAS (ones that I am invested in!) will need to raise some capital to bolster their net worth (not related to AUM).  They have less than 3 years to do so.

This is a matter of concern for current and future investors in these AMCs.

This is a tough stipulation to comply with. However there is time. If the AMCs fail to do so on their own, they will have to enter into partnerships or will have sell.

Either way, I intend to wait and watch. A significant portion of my net worth is in QLTE. I do rather large manual investments each month in both QLTE and PPFAS LTVF. Both of them are star performers in my folio (use the automated mutual fund tracker to evaluate your folio) and I have no intention to make any changes.

Let us cross that bridge when we get to it. For now, QLTE remains an excellent choice for long term goals. For obvious reasons, distributors and 'fee-based' financial planners are unlikely to recommend it!

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44 thoughts on “Mutual Fund Analysis: Quantum Long Term Equity

  1. Abhijit

    Great analysis and good to know the point thar RBI has asked them to raise their minimum net worth to 50 Cr. This is really an injustice on small firms doing great against big guns (ICICI, HDFC, etc. who put pressure on RBI to levy such ridicules impositions on small firms).

    Is there any way to protest this norm of RBI?

    Reply
    1. pattu

      Thanks Abhijit. Yes it is an injustice and it was opposed by many in the advisory committee. It makes no sense. We will need to protest to SEBI and not to RBI about. Perhaps a written petition co-signed by many would help.

      Reply
  2. Abhijit

    Great analysis and good to know the point thar RBI has asked them to raise their minimum net worth to 50 Cr. This is really an injustice on small firms doing great against big guns (ICICI, HDFC, etc. who put pressure on RBI to levy such ridicules impositions on small firms).

    Is there any way to protest this norm of RBI?

    Reply
    1. pattu

      Thanks Abhijit. Yes it is an injustice and it was opposed by many in the advisory committee. It makes no sense. We will need to protest to SEBI and not to RBI about. Perhaps a written petition co-signed by many would help.

      Reply
  3. Fasil

    Sir, Its better to start a petition in change.org and submit it to SEBI. I have invested in QLTE and its the only AMC with direct plan since its since and its more concerned about investor money. I m not sure why SEBI mandates such rules and which impacts on AMC's like Quantum and PPFAS. My retirement SIP's are running in QLTE. QLTE expense ratio is pretty less compared to other AMC's.

    I m about to start my investment in PPFAS. Sir let's do something good for retails investor and for AMC which are investor friendly.

    Reply
    1. pattu

      Yes Fasil. I agree. Perhaps I will start the petition myself. I am in the same boat as you are.

      Reply
  4. Fasil

    Sir, Its better to start a petition in change.org and submit it to SEBI. I have invested in QLTE and its the only AMC with direct plan since its since and its more concerned about investor money. I m not sure why SEBI mandates such rules and which impacts on AMC's like Quantum and PPFAS. My retirement SIP's are running in QLTE. QLTE expense ratio is pretty less compared to other AMC's.

    I m about to start my investment in PPFAS. Sir let's do something good for retails investor and for AMC which are investor friendly.

    Reply
    1. pattu

      Yes Fasil. I agree. Perhaps I will start the petition myself. I am in the same boat as you are.

      Reply
  5. NANDA KISHORE M

    Mr. Pattabiraman, thanks for detailed analysis. Very impressive(your analysis as well fund performance). SEBI protects interests of small investors. SEBI is efficient as a watch dog (eg: Sahara). Am sure there must be some forward thinking in demanding to increase to Rs.50 Crores. I suggest petition should follow a detailed study.

    Reply
    1. pattu

      Thank you. While I agree with that SEBI does a decent job of protecting small investor interests, the present change does make any sense. The net worth of an AMC has no relation to credibility, reliability or performance. At least it should have increased it gradually instead of such a drastic increase.

      Reply
  6. NANDA KISHORE M

    Mr. Pattabiraman, thanks for detailed analysis. Very impressive(your analysis as well fund performance). SEBI protects interests of small investors. SEBI is efficient as a watch dog (eg: Sahara). Am sure there must be some forward thinking in demanding to increase to Rs.50 Crores. I suggest petition should follow a detailed study.

    Reply
    1. pattu

      Thank you. While I agree with that SEBI does a decent job of protecting small investor interests, the present change does make any sense. The net worth of an AMC has no relation to credibility, reliability or performance. At least it should have increased it gradually instead of such a drastic increase.

      Reply
  7. Abhijit

    I agree. It should have been gradual. Rather they (SEBI) should have imposed restrictions on fresh sell of units if the MF scheme lags its benchmark for a considerable amount of time.

    Reply
    1. pattu

      Unfortunately that kind of monitoring would be too harsh and also not practical. Alternatively remunerations for fund managers should be based on performance and not on AUM.

      Reply
  8. Abhijit

    I agree. It should have been gradual. Rather they (SEBI) should have imposed restrictions on fresh sell of units if the MF scheme lags its benchmark for a considerable amount of time.

    Reply
    1. pattu

      Unfortunately that kind of monitoring would be too harsh and also not practical. Alternatively remunerations for fund managers should be based on performance and not on AUM.

      Reply
  9. Muthu Krishnan V

    in the figure for mutual fund returns analyser, number of instalments for 1 yr is 8, 2 years is 17, 5 year is 24, 6 years is 28. why are they not 12,24,60,72? I am now investing only in qltef for more than a year now.

    Reply
    1. pattu

      Thank you very much! I have corrected it now. Please have a look. Don't know why I got it this way the first time I ran the returns analyzer.

      Reply
  10. Muthu Krishnan V

    in the figure for mutual fund returns analyser, number of instalments for 1 yr is 8, 2 years is 17, 5 year is 24, 6 years is 28. why are they not 12,24,60,72? I am now investing only in qltef for more than a year now.

    Reply
    1. pattu

      Thank you very much! I have corrected it now. Please have a look. Don't know why I got it this way the first time I ran the returns analyzer.

      Reply
  11. bharat shah

    thank you for your detailed analysis of qlte fund ,which provided me the insight in my biggest equity fund. recently i could calculate cagr of my equity portfolio in @last 5 yrs with one of your calculators and found with sense of comfort but a little wonder, some 30-40% alpha over indices, but on seeing the graph of rolling return of 5 yrs for the fund, i grasp the real picture that by time i started (july,2009) mutual funds, the alpha seems very good by incidence. hope you post sometime analysis of good mid -small cap fund. i noticed that though the mid cap indices perform poorly compared to large cap indices, good mid cap mfs perform far far better than large cap fund over a period.
    for SEBI's guideline for increasing equity from 10 cr to 50 crs, something should be done from our end.

    Reply
    1. pattu

      Thank you. I was wondering why I haven't heard from you on this post! Yes I agree with you about mid and small caps. Will get to this soon. Reg. the net worth stipulation perhaps we can wait and watch and then represent down the line. We have some time available.

      Reply
  12. bharat shah

    thank you for your detailed analysis of qlte fund ,which provided me the insight in my biggest equity fund. recently i could calculate cagr of my equity portfolio in @last 5 yrs with one of your calculators and found with sense of comfort but a little wonder, some 30-40% alpha over indices, but on seeing the graph of rolling return of 5 yrs for the fund, i grasp the real picture that by time i started (july,2009) mutual funds, the alpha seems very good by incidence. hope you post sometime analysis of good mid -small cap fund. i noticed that though the mid cap indices perform poorly compared to large cap indices, good mid cap mfs perform far far better than large cap fund over a period.
    for SEBI's guideline for increasing equity from 10 cr to 50 crs, something should be done from our end.

    Reply
    1. pattu

      Thank you. I was wondering why I haven't heard from you on this post! Yes I agree with you about mid and small caps. Will get to this soon. Reg. the net worth stipulation perhaps we can wait and watch and then represent down the line. We have some time available.

      Reply
  13. jawahar prasad

    sir, I am investing in QLTE for the last many years.Please let us know how we can help this fundhouse to go through SEBI norms.Thanks

    Reply
    1. pattu

      Hi, I suggest we wait and watch and allow QLTE some time to meet with the norms. we after all have about 2.5 year more. There will be some clarity after about 2 years or so. Let us wait and watch.

      Reply
  14. jawahar prasad

    sir, I am investing in QLTE for the last many years.Please let us know how we can help this fundhouse to go through SEBI norms.Thanks

    Reply
    1. pattu

      Hi, I suggest we wait and watch and allow QLTE some time to meet with the norms. we after all have about 2.5 year more. There will be some clarity after about 2 years or so. Let us wait and watch.

      Reply
  15. Prasanth

    Excellent analysis and thank you very much for it. I consider myself a "rational" investor and am biased towards the value investing philosophy. My majority SIP amounts go into QLTE and PPAS fund precisely because their philosophy mirrors mine and it is really distressing to know that SEBI is changing the ground rules so arbitrarily. I fail to understand what the portfolio size has to do with fund performance /management - in fact bigger the size, more difficult it becomes to manage. Hope SEBI will do away with rules like these.

    Reply
    1. pattu

      Hi Prasanth, Thanks. Good to know about your investing philosophy. SEBIs stipulation is wrt net worth and not AUM. How course net worth also doe not have anything to do with performance/management! Let us wait and watch how things develop.

      Reply
  16. Prasanth

    Excellent analysis and thank you very much for it. I consider myself a "rational" investor and am biased towards the value investing philosophy. My majority SIP amounts go into QLTE and PPAS fund precisely because their philosophy mirrors mine and it is really distressing to know that SEBI is changing the ground rules so arbitrarily. I fail to understand what the portfolio size has to do with fund performance /management - in fact bigger the size, more difficult it becomes to manage. Hope SEBI will do away with rules like these.

    Reply
    1. pattu

      Hi Prasanth, Thanks. Good to know about your investing philosophy. SEBIs stipulation is wrt net worth and not AUM. How course net worth also doe not have anything to do with performance/management! Let us wait and watch how things develop.

      Reply
  17. ddshah

    Sir,Nice work....keep it up...i could not get "For obvious reasons, distributors and ‘fee-based’ financial planners are unlikely to recommend it!"?? pl exllain this...thanks

    Reply
    1. pattu

      Thank you. Quantum AMC does not commissions to distributors and planners. So they will not recommend it!

      Reply
  18. ddshah

    Sir,Nice work....keep it up...i could not get "For obvious reasons, distributors and ‘fee-based’ financial planners are unlikely to recommend it!"?? pl exllain this...thanks

    Reply
    1. pattu

      Thank you. Quantum AMC does not commissions to distributors and planners. So they will not recommend it!

      Reply
  19. Ravish

    Hello,

    I could see that recent ratings downgrade for QLTE fund on VR portal. Could be the reason that fund is carrying high loads of cash holdings during the market upswings.
    Personally, I like the fund philosophy of investing in value buys and maintaining cash levels rather adjusting the cash levels wrt to tides in the market.
    The fund also carries one of the lowest expense ratios amongst the peers, however there is an exit load involved for investments less than 2 years time frame, but for long term investors that should not be matter of concern.
    @Pattu: can you please share your views on this fund? if it makes sense to invest in fund even in high tides given the high cash holdings (which would rather provide buffer during downturns and allow fund to allocate more towards value buys during downturns)

    Thanks,
    Ravish

    Reply
  20. Ravish

    Hello,

    I could see that recent ratings downgrade for QLTE fund on VR portal. Could be the reason that fund is carrying high loads of cash holdings during the market upswings.
    Personally, I like the fund philosophy of investing in value buys and maintaining cash levels rather adjusting the cash levels wrt to tides in the market.
    The fund also carries one of the lowest expense ratios amongst the peers, however there is an exit load involved for investments less than 2 years time frame, but for long term investors that should not be matter of concern.
    @Pattu: can you please share your views on this fund? if it makes sense to invest in fund even in high tides given the high cash holdings (which would rather provide buffer during downturns and allow fund to allocate more towards value buys during downturns)

    Thanks,
    Ravish

    Reply

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