Monday, August 17, 2009



Mr.Mukesh Pandya asked,

Can you explain what is a Quant Fund??/


Dear Mukesh,

Quant Funds are a scientific approach to investing in Stock Markets based on Mathematical model.

The Portfolio of a 'Quant Fund' is based on Computer-based quantitative analysis working on a mathematical model, with no involvement of human judgement. Thus, there is no provision for any emotion or sentiment involved when buying/selling stocks in the Quant Portfolio. The quantitative analysis is undertaken using computer-based models either designed inhouse or outsourced by the fund.

Reliance Mutual fund, for instance, for its Reliance Quant Plus Fund has developed an in-house model, whereas Benchmark has based its Quant Fund on a model designed by Citigroup
Religare Agile Fund (formerly Lotus Agile Fund) launched in Novermber 2007 is India's First Quant Fund.
Quant funds are more popular among the private funds such as hedge funds, rather than among public funds.

The fund invests in a stock universe selected by pre-programmed guidelines. For example, in the case of Religare Agile Fund, the stock should have been listed for at least one year, the market cap of the stock should be higher than the market cap of the S&P CNX Nifty stock that has the lowest market cap, and so on.

The portfolio of stocks is reviewed and reset every month using the quantitative analysis model.

Quant Funds first emerged in the 1970s and became popular in the 1990s as computing methods evolved. According to an estimate, currently over $800 billion in assets under management are invested in quant funds globally.

There are around 200 fund houses in the quantitative space with 120 in the US alone.


Based on the performance of the existing Quant Funds, the answer is Firm NO. The model is still new in India and not proven yet but the Quant Fund strategy can be useful when the model is built properly. Religare Agile has had a disastorous performance since its launch inspite of its Large Cap bais.
Religare has underperformed its Benchmark both in Bull and Bear phases. It has lost 32% since inception compared to 12% of its Benchmark.
However, Reliance Quant Plus Fund has done much much better giving a postive return of 4.92% compared to its Benchmark returns of -5.08%.

Let the concept prove itself and then you can commit your funds. For now, if you are really interested, take a sip way to investing and take a call in future.

Best of luck,

Srikanth Shankar Matrubai

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