Why we continue to sit on cash

'Investors suffer from a misconception that trying to make money requires one take serious risks. In fact the converse is true. Avoiding serious loss is a precondition for sustaining a high compound rate of growth'

Over the last few weeks, we have received quite a few queries related to our elevated cash levels and the fact that we may risk underperforming in a rising market. I have explained the rationale for elevated cash levels in the fund before, but let me take this opportunity to once again explain the drivers that caused the high cash levels in the first place and its implications for an investor of Quantum Long Term Equity Fund.

What caused the increase in cash levels in the fund?
Quantum follows value investment style while investing; we buy when we believe a company's valuation is cheap relative to its long term earning potential and historical valuations and we sell when we believe a company’s valuation is expensive based on the long term earnings potential and historical valuations. This analysis is at a stock level and not at the Index level. Whenever our pre determined buy limit for a stock is triggered, the company becomes part of the portfolio and whenever a sell limit is triggered we exit the stock. Whatever remains is cash. The last few months have seen us exit quite a few stocks as we believe they became more expensive relative to their investment value, raising the cash levels in the fund to a historic high.

Are we trying to time the markets?
We do not look at Index levels to decide equity allocation. We do not believe we have that capability. What we do believe is we have the capability to look at an individual company and determine whether it is trading at a discount to its intrinsic value. Market levels are not a consideration when deciding whether a company should be part of the portfolio. If we do find companies offering value even at these elevated market levels (and we continue to actively research companies factoring latest inputs in our research models), they will become a part of the portfolio.

Will near term performance suffer?
If the market continues to rally driven by relentless flows then surely we will underperform, but that does not worry us. We understand that markets can stay expensive for a very long time. Just because we believe markets are expensive is no reason for markets to correct. Rationality will play second fiddle to momentum in such markets. All it means is the stocks which we believed were originally expensive have turned even more expensive as they continue to rally, increasing downside risk; the risk of loss.

We believe the secret to building steady, long term sustainable returns in equities lies in buying stocks when they are cheap and selling them when they turn expensive. Buying stocks when they are expensive and hoping to sell them when they turn even more expensive is not a strategy we believe in or are very good at. We continue to stay focussed on building a portfolio which delivers long term steady return to the investor. Irrespective of what happens in the near term, we hope our long term track record proves that.

Name of the Scheme & Primary Benchmark	This 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.	Investors understand that their principal will be at Moderate Risk

(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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