Quantum Long Term Equity Value Fund has been Unovest’s earliest recommendations for building a long term, conservative equity oriented portfolio. Lately, it has received a lot of flak from the readers, investors and clients.
“It goes down more than the market but climbs up slower” has been one client’s concern forever. The performance is not exceptional. For the last 7 years, SIP returns have been close to the index total returns.
A friend of mine (who runs a successful stock investing education blog) even declared its portfolio a dud.
With all these reasons, why would any sane investor want to invest or remain invested in this fund? Hmmm. Fair question.
Let’s revisit some of the core aspects of this fund.
Quantum Long Term Equity Value Fund – a quick look into the factsheet
This is a value style fund, which means that it is going to evaluate every investment from the point of view of price and quality. Capital protection gets the highest priority along with a reasonable return on the investment.
Every value investor knows that the money is made in the buying, not the selling. The margin of safety has to be big enough to provide for any evaluation mistakes or out of control issues. This provides a safety net for the capital, first and then, a potential larger room for upside gains.
Quantum follows this approach to the T. It is in no hurry to follow the herd (the industry) or invest in what is popular. Typically, it invests money in ethical, minority shareholder friendly, underpriced, under owned opportunities which have the potential to deliver a reasonable return to the investor.
Taking this further, there is no unnecessary activity in the portfolio, just to manage returns or get more assets from investors. This also reflects in the turnover ratio.
If you study the portfolio for the past 6 months, the fund purchased only Gas, power and energy based stocks. All other holdings remain intact. I am talking the no. of shares.
The portfolio turnover is at 12%, which means the average holding period of a stock in the portfolio is close to 8 years. How many funds / investors have such a long term approach?
In its current portfolio, you will see in its holding well known names such as HDFC, TCS, Infosys, Bajaj Auto most of which have suffered from bad news and are out of favour.
Then there are PSUs, which are currently under owned in the market or let’s say there is not so much interest in Govt run companies as of now. But given the long term focus of the Govt to dilute its holdings in these PSUs (which it might be forced to do given the tightening fiscal situation), the rewards may not be far.
[On Nov 20, 2019 the Finance Ministry announced a plan to strategically divest some of the PSUs.]
However, if you compare the fund in the short to medium term with the market or with other funds, the fund will appear as a laggard.
If as an investor, you are willing to wait long enough, this approach rewards you well with much lower risk.
What should you do as an investor?
The fund, given its investing approach, demands patience. This means that no comparison with index benchmarks. The fund can deviate from benchmarks for a significant period of time.
If you are looking for a market linked performance fund in the portfolio, then this is not the fund to have.
Quantum Long Term Equity Value Fund is a well managed fund, specially for the ones focused on protection of capital.
We continue to recommend this fund for conservative investors along with Parag Parikh Long Term Equity Fund.
Latest factsheet of Quantum Long Term Equity Value Fund