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Automation with technology has spread across practically in almost every field, and mutual funds are no exception with the phenomenon of Quant Funds. Aditya Birla Sun Life Mutual Fund has come up with a new fund, the Aditya Birla Sun Life Quant Fund, powered by tech and guided by wisdom. The New Fund Offer period is from June 10, 2024, to June 24, 2024.
Aditya Birla Sun Life Quant Fund is an open-ended equity scheme following Quant based investment theme that is said to harness the best of 'Man and Machine' capabilities to power your investments in this era of advancing technology.
As you may know, modern machines excel in computational tasks, efficiently managing various analytical activities in investing, such as high-volume data processing and execution. This coupled with the human cognitive skills, judgement and creativity in the investment decisions, potentially translates into successful investments.
Infographic 1: Machines v/s Humans in Investing
(Source: Aditya Birla Sun Life Mutual Fund Investor Presentation)
What is the Investment Objective of Aditya Birla Sun Life Quant Fund?
The investment objective of Aditya Birla Sun Life Quant Fund is to generate long term capital appreciation by investing in equity and equity-related securities based on the quant model theme. The Scheme does not guarantee/indicate any returns. There is no assurance that the investment objective of the Scheme will be achieved.
How will Aditya Birla Sun Life Quant Fund allocate its assets?
80%-100% of the Scheme's assets will be allocated to equity & equity-related instruments (including equity ETFs) based on the quant model theme. Up to 20% may be in equity & equity-related instruments (including equity ETFs) other than the quant model theme.
The Scheme may also seek to invest up to 20% of its net assets in foreign securities (as per para 12.19 of SEBI Master Circular on Mutual Funds dated May 19, 2023).
Moreover, up to 10% may be invested in units issued by REITs and InvITs. Also, for liquidity needs and defensive consideration of up to 20% could be held in debt and money market instruments (including debt ETFs and debt derivatives).
The Investment Strategy of Aditya Birla Sun Life Quant Fund
To achieve the stated investment objective, Aditya Birla Sun Life Quant Fund deploys factor-based quantitative investment strategies that use mathematic models and algorithms to identify investment opportunities with rules, making the investment process data-driven unbiased, and disciplined. The fund will look at 'factor investing strategies' that would target securities with specific characteristics such as value, quality, momentum, size, minimum volatility etc.
As part of risk management, the fund managers would monitor investment decisions and model performance in the endeavour to generate superior long-term returns compared to its benchmark.
The investment universe would be screened using quantitative measures like data availability, liquidity etc. and then subsequently factors described below would be used to evaluate the stocks' attractiveness from a risk and return perspective.
Aditya Birla Sun Life Quant Fund's model looks at various factors to evaluate growth outlook while considering valuation parameters for these companies, these include:
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Return on Equity
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Return on Assets
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Sales growth
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Debt to equity ratio
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Cash flow
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Operating Profit Margins
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Net Profit Margins
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Earnings growth
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Price-to-book
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Price-to-earnings
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Dividend yield
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Earnings yield
Other than that, Aditya Birla Sun Life Quant Fund's model will also look to capture the behavioural attributes reflected in the stock price movement. For this, it shall consider the following parameters among others:
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Liquidity
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Stock price momentum
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Volatility
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Historical performance
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Ownership patterns
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Drawdown analysis
While evaluating the attractiveness of a stock, Aditya Birla Sun Life Quant Fund's model will also analyse the risk levels of the stock. Now, some risks can be measured, and some cannot. The indicative list of parameters the model will consider for risk assessment are:
Note, that the fund manager can change the above quantitative and qualitative parameters by addition or deletion of the parameters, to enable the Scheme to take exposure to the specified factors for the selection of stocks. The Scheme may also invest in equity and equity-related instruments which are not a part of in in-house proprietary quantitative model.
That said, the fund is conscious in its investment process that not owning poorly run companies is a significant source of alpha generation over the long term. Thus, the investment universe will be pruned by applying objective pre-defined criteria to exclude companies that are either very illiquid or score poorly on governance standards, have excessive leverage or past drawdown behaviour or capital allocation or return metrics or on operating parameters consistently etc.
The process from universe selection to portfolio construction would be largely systematic and optimized with the aim of maximising the return while minimising active risk. It would ultimately hold 45 to 50 stocks in its portfolio, across market capitalisations and sectors.
And as part of the investment process, the portfolio of the Scheme will be reviewed by the fund manager constantly and rebalanced on least monthly basis based on the output of the model. Furthermore, also review and maintain the model (including variables) on an ongoing basis and make changes as and when necessary.
As regards the debt portion of the portfolio, which is mainly to manage the liquidity requirements, the Scheme's investment shall comprise debt and money market instruments issued by corporate and/or state and central government to control volatility and provide cash flows on a continuous basis. Investments in debentures and bonds will usually be in instruments which have been assigned investment grade ratings by any approved rating agency.
A rigorous in-depth credit evaluation of the securities proposed to be invested in will be carried out by the investment team of the fund house for its fixed-income investments. Also, it will study the macro-economic conditions, including the political, and economic environment and factors affecting liquidity and interest rates when investing in debt markets.
When investing in REITs and InvITs, Aditya Birla Sun Life Quant Fund shall consider various factors such as liquidity, sector outlook and returns expectations.
The investment across asset classes within the stated range will be based on opportunities available in the different asset classes and the future outlook for the markets.
The Scheme may also have a prudent exposure to derivatives, i.e. Futures & Options to capture opportunities arising out of market imperfection and to hedge the portfolio, whenever necessary. Derivative products are leveraged instruments and can provide disproportionate gains as well as disproportionate losses to the investor. Execution of such strategies depends upon the ability of the fund manager to identify such opportunities. Identification and execution of the strategies to be pursued by the fund manager involve uncertainty and the decision of the fund manager may not always be profitable. Note, that no assurance can be given that the fund manager will be able to identify or execute such strategies. The risks associated with the use of derivatives are different from or possibly greater than, the risks associated with investing directly in securities and other traditional investments.
How Will Aditya Birla Sun Life Quant Fund Benchmark Its Performance?
The Scheme will benchmark its performance against the Nifty 200 TRI (Total Return Index).
The Nifty 200 index includes all companies forming part of Nifty 100 and Nifty Full Midcap 100 index. The Nifty 200 index is designed to reflect the behaviour and performance of large and mid-market capitalisation companies. Thus, the Nifty 200 index is suitable for the benchmarking of funds in Quant theme.
Who Will Manage Aditya Birla Sun Life Quant Fund?
Mr. Harish Krishnan, the co-CIO and Head of Equity is the dedicated fund manager for Aditya Birla Sun Life Quant Fund. Mr. Krishnan has over 20 years of experience in the asset management industry both, domestic and international. Before joining Aditya Birla Sun Life Mutual Fund, Mr. Krishnan was associated with Kotak Mutual Fund for more than 10 years as Senior Fund Manager - Equity. He has also worked at Kotak Mahindra (UK) Limited where he managed offshore funds based out of Singapore and Dubai.
He holds a bachelor's degree in engineering (B.E.) from the Government College, Trichur, a PGDBM from IIM Kozhikode, and is also a Chartered Financial Analyst from CFA Institute, USA.
The other schemes managed by Mr. Krishnan are:
(Source: Scheme Information Document)
The overseas investment of Aditya Birla Sun Life Quant Fund will be managed by Mr. Dhaval Joshi. He has over 16 years in equity research and investments. Before joining Aditya Birla Sun Life AMC Limited, he was associated with Sundaram Mutual Fund (India) Ltd. for around 5 years. He has also worked as a research analyst with Emkay Global Financial Services and Asit C. Mehta Investment Intermediates Ltd. He holds a master's degree in commerce (M.Com) and an MBA in Finance. He also manages the other global/international funds at the fund house.
On the launch of Aditya Birla Sun Life Quant Fund, Mr. A Balasubramanian, Managing Director & CEO of Aditya Birla Sun Life Asset Management Company, said:
"In today's complex markets, we believe quantitative investment strategies can offer valuable advantages such as improved transparency, emotion-free decision making, and robust risk management. The quant fund aims to leverage the combined strengths of human expertise and quantitative models to provide investors with a differentiated investment solution. The Aditya Birla Sun Life Quant Fund will deliver these benefits to investors through a rigorous, research-driven approach for an innovative investment process powered by tech and guided by wisdom."
Who Should Invest in Aditya Birla Sun Life Quant Fund?
Investors looking to seek the best of both worlds, that is, benefit from the quant model and human insights, and whose investment objective is wealth creation over the long term can consider this fund provided they have a very high-risk appetite and investment time horizon of at least 3 to 5 years or more.
Infographic 2: Benefits of Quant Investing
(Source: Aditya Birla Sun Life Mutual Fund Investor Presentation)
What Is the Minimum Investment in Aditya Birla Sun Life Quant Fund?
During the New Fund Offer period (from June 10, 2024, to June 24, 2024), the minimum investment is Rs 500/- and in multiples of Re. 1/- thereafter.
Investors also have the Systematic Investment Plan (SIP) route available to invest, wherein you have monthly and weekly options. The minimum number of SIPs is 10, while the minimum SIP amount is Rs 500/-.
There is no upper limit for the investment. Your investment can be made either in the Regular Plan or Direct Plan.
To know more about Aditya Birla Sun Life Quant Fund, download and read the Scheme Information Document and Key Information Memorandum.
Want to know more about mutual funds following the quant model? Click here.
Happy Investing!