Axis Mutual Fund has launched Axis Quant Fund. This open-end fund will majorly invest in equity and equity-related instruments based on a quantitative model. The new fund offer (NFO) opened up for the subscription on June 11, 2021 and will close on June 25, 2021. Here are a few things that you need to know about the fund.
Can you please elaborate on the 'Quality stocks with good Growth but At a Reasonable Price' approach and the underlying quantitative model/parameters the fund will deploy to make the stock selection?
Each stock in the universe will be assessed along the three main styles, i.e., Growth, Quality and Valuation and a score will be calculated at a style level based on underlying parameters in each of the three categories. Subsequently, a composite score will then be calculated which will serve as an indicator of the attractiveness of the stock. Stocks that rank well on the composite score should typically rank well on all three or at least on two out of the three parameters.
Thus, the portfolio of stocks chosen based on the composite score will effectively represent a portfolio of quality stocks with good growth prospects but at the right valuation.
Given that the fund is benchmarked to S&P BSE 200 TRI, will it invest mainly in large- and mid-cap stocks? Will the universe of stocks for the fund be confined to the top 200 ones by market cap?
The universe of the stock is not limited to BSE 200 and can invest in stocks outside of BSE 200, subject to data availability and liquidity requirements. From our domestic market point of view, the availability of data and liquidity dry up beyond the top 200-300 stocks and hence, the portfolio will be oriented towards large- and mid-cap stocks (75-80 per cent).
Tell us about the constraints on stock and sector-level concentration? Are there any upper and lower limits hard-coded in the model?
The strategy will have a constraint at the stock and sector levels. The stock level constraint will be specific to each stock and will depend on the liquidity of the stock. The higher the liquidity, the higher the probable weight of the stock in the portfolio. This can lead to a higher overweight position on the stock relative to the benchmark.
The strategy also has sector limits related to the benchmark that will be enforced during the portfolio-construction process.
With a target portfolio size of about 50-60 stocks, is it correct to say that the fund is going to be a more diversified offering than other equity funds from Axis which run much more compact, high-conviction portfolios?
Axis Quant Fund will be more diversified in terms of the number of securities in the portfolio, sector and market-cap allocation. The overlap with the current offering both in terms of similarity by weight and names should be on the lower side.
Can you provide some perspective from your back-testing results about what kind of portfolio the quant model has created in terms of the market-cap break-up, the number of holdings and concentration in top holdings?
Based on backtest data, the number of stocks in the portfolio has ranged between 40-60, with the number being at the higher end of the spectrum over the last five years. This is also due to the fact that the Indian markets are becoming more efficient in terms of data reporting and data is available in a more structured format for the analysing purpose. Also, another important point to consider is that the liquidity in the market is constantly improving and this plays a very vital role in the quant process.
Do you plan to invest in foreign securities as well?
The scheme does not plan to invest in foreign securities.
What will be the frequency of review and rebalancing of the portfolio?
The strategy will be reviewed and rebalanced at least on a monthly basis,
Who is the ideal investor for this fund versus your other mainstream equity funds like Axis Flexicap or Axis Growth Opportunities?
Like our other mutual funds, Axis Quant Fund is looking for long-term wealth creation through an alternate and complementary approach to our other traditional funds.
The fund is suitable for investors looking at new investment avenues to diversify their existing portfolio of funds and aiming to stay invested over the long term. Specifically, the fund is ideal for those investors who are a) looking for a unique proposition of a fundamentally driven quant approach b) wanting to construct a portfolio that has an unbiased approach towards portfolio management c) seeking capital appreciation over the long term with a five-year investment horizon.
Note: For detailed asset allocation and investment strategy, kindly refer to the Scheme Information Document (SID).