Atul Kumar, currently the Fund Manager of Quantum Long Term Equity Fund has more than a decade’s experience in equity research and fund management. His strong dedication and simple investment style has won accolades for Quantum Long Term Equity Fund. Atul is also the Fund Manager of Quantum Tax Saving Fund.
Atul holds a Bachelors Degree in Commerce, CFA qualification and a Post Graduate Diploma in Business Management from ICFAI.
He also has been a part of various public speaking events including Quantum’s ‘Path to Profit’, where he interacts with investors and answers questions with respect to his funds.
Prior to joining Quantum AMC’s Equity Research and Fund Management team in 2005, he has worked with Sahara AMC and K.R. Choksey Shares and Securities Pvt. Ltd.
We at Unovest asked Atul to talk about the fund and help us understand all that is important about this fund.
Why does Quantum Long Term Equity Fund exist? What’s the purpose?
The objective of Quantum Mutual Fund is to help every investor invest in Indian equities with our solid research process and low cost approach. Quantum Long Term Equity Fund over the last 10 years have performed across market cycles and aim to generate sensible risk adjusted return over the long term.
We follow the value style of investing and the fund is driven by a disciplined approach to valuations. The scheme is not afraid to increase cash levels when markets are overvalued. The fund may appear to follow a conservative approach but we believe that over the long term it has delivered on the mandate.
What is the investment strategy of this scheme?
To invest in companies which have strong corporate governance, capable management teams and not too much debt leverage. And finally, the stock should be available at a reasonable valuation.
The scheme has Sensex Total Return Index (TRI) as its benchmark. However, your fund objective states “investing primarily in shares of companies that will typically be included in the BSE 200″.
How does an investor understand this?
Quantum Long Term Equity Fund (QLTEF) is a diversified equity scheme. QLTEF invests only in liquid stocks which have daily volume of USD 1 Mn (approx. Rs 6.5 Crores) on both stock exchanges. Such stocks are difficult to manipulate and the NAV is real. Currently, there are about 300 stocks meeting these criteria.
Since a large proportion of our holdings are large cap stocks, the BSE 30 TRI is the benchmark. The S&P BSE 30 TRI, which is the benchmark for QLTEF reflects the Gross Profits of the 30 stocks of S&P BSE Sensex, whereas S&P BSE Sensex keeps the Net Profit as its benchmark.
S&P BSE 30 Total Return Index (TRI) = Gross Profits
S&P BSE Sensex = S&P BSE 30 TRI – dividend payouts by companies
Obviously, the S&P BSE 30 TRI is a higher benchmark and therefore a tougher benchmark to beat.
That apart, we also have BSE 200 as additional benchmark. Investors are free to compare our performance against either of the benchmarks.
How do you pick the investments for this scheme? What are the evaluation parameters? What kind of sectors, stocks, etc. do you focus on?
We cover around 140 stocks. These are modeled in detail by our team and updated regularly. All the stocks have internally defined buy and sell limits. We only buy stocks that meet the buy criteria and sell them once they cross the sell limit.
We are sector agnostic. One sector in which we have not invested so far is the real estate sector, largely because financial numbers are opaque.
The scheme tends to hold cash at various times. What is the highest level of cash you can go upto? How do you put that into perspective for an investor?
The maximum cash level that can be held by the scheme is 35%. If we believe that the markets are overvalued and will correct at some point, it makes better sense to protect capital by selling overvalued stocks.
Historically, we have also witnessed that markets correct after our cash allocation goes up significantly and we then are ideally placed to invest in opportunities emerging out of a falling market. Most importantly, it helps to reduce risk.
What will you NOT do as part of managing this scheme?
The scheme follows a defined process.
It will not invest in companies where we are not comfortable or convinced about corporate governance.
It will not invest in companies that have been unfair to minority shareholders.
It will also never invest in stocks which look overvalued to us no matter how exciting the company’s story may be.
What pressures do you face as a part of managing the scheme? What mistakes have been made in the last 10 years plus?
There are times when we underperform, especially in frothy markets. While this does put pressure, we don’t deviate from the discipline.
We have made mistakes by buying stocks, which didn’t live up to our potential, either from a misread of management or a misread of the business’ ability to compete. We had to sell them midway through what we would consider a normal holding period (3-5 years). Thankfully, there are only a few of such stocks.
We learned from our past mistakes by incorporating the lessons from those mistakes into future investment decisions.
You have a dividend option in Quantum Long Term Equity Fund. Yet, you have never declared a dividend. In fact,the NAV of the dividend option is higher than that of the growth option, usually it is the reverse. This leads to confusion for some investors.
What is the reason for having this option?
We have never declared dividend in Quantum Long Term Equity Fund so far because we believe investors must declare their own dividend.
There is a problem with declaring a dividend: what if you don’t need the money, or need more of it, or need less of it? Hence, it’s best if investors redeem whenever they need money, and meanwhile fund managers will be in a better position to decide what to do with earnings, which will definitely work in the interest of investors.
Who should NOT invest in this scheme?
People looking to make quick money in the short term should not consider this scheme. We are patient, long term investors. Additionally, there are exit loads upto 2 years in the scheme to dissuade investors with short term horizons.
As a fund manager, how do you see India (individually and along with the world) going forward? What kind of opportunities are there currently or likely to emerge specially from an investing point of view?
India’s is likely to grow Real GDP at 6-6.5% for many years in the foreseeable future. This is equivalent to nominal GDP growth of 13-13.5%. Accordingly, the equity returns can be in the range of 14-15% p.a. assuming many companies will be able to efficiently manage their expenses even with such high growth.
Retail investors have massive under-allocation to Indian equities. As this corrects, there will be plenty money from retail which will lift valuations and lead to a better return for existing equity investors.
Does the cook eat his own cooking? Do the fund managers invest in this scheme?
Thank you Atul. You have shared some wonderful insights about the fund with us. I hope this will help a new investor take the right decision.
Disclaimer: The purpose of this interview is only to educate investors. This should not be interpreted as a recommendation. Please consult your investment advisor to know if it deserves to be in your portfolio.
You can view a detailed factsheet of Quantum Long Term Equity Fund on this link.