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
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).
Thankfully, the underformance is only recent. Over 3Y, 5Y, 7Y periods the fund has always outperformed its benchmark. Here is the 3Y graph.
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.
That is remarkably consistent!
Here are the 1Y rolling returns.
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.
3-year rolling returns
Notice the recent dip in performance and the quick recovery.
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!