Why does your fund have a high cash level?

Posted On Monday, Mar 16, 2015


It is said that, sitting on cash in not always the best strategy in equity markets. Such a move could easily backfire in surging market conditions. But at Quantum we feel that, with high valuations it makes sense to wait rather than risk investors’ money at this time. Aggressive cash calls have nothing to do with the perception of the market; it’s a call on the fundamental of an individual stock.

With markets regularly hitting new highs and then collapsing suddenly before rising yet again; it makes sense to wait. As we have always stated, we believe in the long term outlook either for a particular stock, or for the Indian economy as a whole. We are not worried about short-term under performance if it has potential to generate risk-adjusted returns in the long term.

Currently the cash holding for Quantum Long Term Equity Fund is around 30 per cent and it’s the highest since the launch of the fund. Since elections results have been declared last May, markets have soared sharply with little fundamental changes like increased corporate spending etc. to back this jump. Hence, we have lightened our exposure to sectors like industrials, capital goods and financials, only because we are not comfortable with current valuations.

Cash is residual after investing in stocks

For us, cash is residual after investing in stocks. We follow the bottom up stock selection process, where we identify stocks and build a portfolio. Our research team and the Fund Management team set the buy and sell limit of the stocks. We generally buy a new stock at the pre-determined Buy price (or below) and generally sell an existing stock at the pre-determined Sell price or above.

The Past explains
Even if you look back at the history of the fund, in the year 2007, when the markets were racing upwards - the cash levels at Quantum Long Term Equity Fund (QLTEF) was around 15-20%. Thus the fund was poised to take advantage of the dive in markets in late 2008 due to the Lehman crisis. Cash levels of QLTEF were at all-time lows at that point in 2008 as most stocks then came into the 'buy' limit of the fund. Since then, till now, the fund manager has continued to manage the scheme prudently.

The stock market is cyclical and since the formation of the new government at the center, it has been hitting new highs almost every week regardless of the fact that the fundamentals are not backing it. Hence the cash levels of QLTEF are high, yet again.

Our philosophy of thinking long term, being value investors, and our stance towards choosing the stocks that are the best for the portfolio while also not taking extreme risks will not change. So if markets continue their upward trajectory it is likely that we will continue to sit on high levels of cash.

So we take this opportunity to thank you yet again for your trust and continued faith in the Quantum philosophy and request you to be patient with us as we wait for the right opportunity to re-enter the market at the right time, and continue delivering the returns you have come to expect from us.

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.

Note: Risk is represented as:
(BLUE) investors understand that their principal will be at low risk (YELLOW) investors understand that their principal will be at medium risk (BROWN) investors understand that their principal will be at high risk

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 – www.quantumamc.com/disclaimer to read scheme specific risk factors.

Above article is authored by Quantum.

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