Grass or Oak - What characteristics does your equity mutual fund have?

Posted On Wednesday, Aug 05, 2015


In normal weather the mighty oak tree is a sight to behold, tall and strong and giving shade to all those that seek it. Similarly is there a more wonderful sight than seeing a grassy plain? With green as far as the eye can see, it is truly a calming sight.

Like all situations in life, it is in rough weather that the true characteristics of each are revealed. In windy conditions, the grass bends and twists as per the whims of the wind, whereas the mighty oak remains firm in the face of adversity. Both survive the storm, the tree as it remains firm and rooted while the grass survives because it bends as per the wind.

Similar situations also happen in the world of fund management where the winds of change blow daily in financial markets across the globe. There are typhoons that hit the financial markets too like the Lehman crisis in 2008. So does the equity fund that you have invested in remain firm during tough times? Or do the underlying stocks in the fund keep changing depending upon which direction the financial winds seem to blow?

This is a question that a very interesting article, in a widely read financial tabloid attempts to answer. The article which appeared on Monday 3rd Aug 2015 compares funds to the category average, and rightly questions whether the category average should be considered at all. It proceeds to describe that certain funds, which had high cash levels, are not necessarily bad funds in which to invest.

Our take on the article, which incidentally mentions Quantum funds, and this situation - is simple. Quantum follows the strategy of the oak, wherein we stay rooted to our investment philosophy of being value investors and continuing to follow a bottom up stock selection process. This could sometimes mean that we are swimming against the tide of most equity funds snapping up stocks when markets are at high levels. Quantum’s value based philosophy dictates that as long as we do not find value in a stock – that it doesn’t hit our ‘buy’ limit we will not buy that stock.

Similarly when markets are high, most stocks will hit their ‘sell’ limits, thus if we sell when markets are high and don’t buy more stocks simply because they are ‘in trend’ – we will be left with high cash levels.

Here is what Nilesh Shetty - Associate Fund Manager for the Quantum Long Term Equity Fund has to say on this strategy -

“We have a predetermined Buy and Sell limit for each stock actively covered by our research team. The limits are decided based on sustainable cash flow generating ability of a company and its long term valuation bands. Once a stock hits our buy limit it finds its way into our QLTEF portfolio and once it hits our sell limit it exits our portfolio. Whatever remains is cash. During large flow driven markets, a lot of the stocks hit our sell limit forcing us to sell out of them raising our cash levels. We believe this simple approach allows us to limit biases in investing and create a portfolio based on long term fundamentals.”

Thus, in the long term it pays to be the oak and be rooted to a particular philosophy on which the fund stands. In the short term there could be instances where the fund underperforms, but as long as the long term view is kept in mind, and is adhered to in practice – like for the Quantum Long Term Equity Fund. However, the fund also cannot afford to be rigid in its rules and ignore market conditions, the Fund manager has an unenviable job of delivering the best to our investors like you, while ensuring that the philosophy on which Quantum and fund stands is not compromised even by an inch.

Our investment philosophy is detailed on the website. You may read it here.

Product Labeling

Name of the Scheme & Primary BenchmarkThis product is suitable for investors who are seeking*Risk-o-meter of Scheme
Quantum Long Term Equity Value Fund

An Open Ended Equity Scheme following a Value Investment Strategy
• Long term capital appreciation

• Invests primarily in equity and equity related securities of companies in S&P BSE 200 index.
Quantum Long Term Equity Value Fund
Investors understand that their principal will be at Moderate Risk

* Investors should consult their financial advisers if in doubt about whether the product is suitable for them.

Disclaimer, Statutory Details & Risk Factors:

The views expressed here in this article / video are for general information and reading purpose only and do not constitute any guidelines and recommendations on any course of action to be followed by the reader. Quantum AMC / Quantum Mutual Fund is not guaranteeing / offering / communicating any indicative yield on investments made in the scheme(s). The views are not meant to serve as a professional guide / investment advice / intended to be an offer or solicitation for the purchase or sale of any financial product or instrument or mutual fund units for the reader. The article has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Whilst no action has been solicited based upon the information provided herein, due care has been taken to ensure that the facts are accurate and views given are fair and reasonable as on date. Readers of this article should rely on information/data arising out of their own investigations and advised to seek independent professional advice and arrive at an informed decision before making any investments. Please visit – to read scheme specific risk factors.

Above article is authored by Quantum.

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