Related to Quantum Long Term Equity M.F.

POSTED BY bharat shah ON July 2, 2012 9:26 pm COMMENTS (19)

in this forum, i think,there are increasing number of QLTE mf investors due to its good performance as well as it has a process driven management. i like to query:
1. how has its dividend option NAV is more than its growth option NAV?
2.it is said that it has never declared dividend for dividend option. i read in other blog comments that the management is telling that who wants dividend, he can get by redeeming some units as required.(the commenter rightly questioned who would bear the exit load).
the fund has always performed better in the category , and is used to keep cash and cash equivalents more than 10% during last 3 yrs. how will you evaluate such policy of the AMC?
3. i read somewhere that NAV of any equity fund though not Transparent, one get it transparent by knowing its equity holding.however where the cash and cash equivalent is as large as 10% or more as in case of QLTE mf , how one can cross check its NAV (of course once in a month)?
4.as some analysts have the opinion about last 3 yrs. good performing large cap diversified mf (that includes multi cap and large-mid cap categories of VRO) is due to their comparably higher holding of cash and cash equivalent in the volatile markets, those funds may not do well in bull period. how would you opine for QLTE MF in similar markets?
5.one of our beloved bloggers , in one of his recent post, opined ,between the lines, his choice of larger AUM mf (if select among , otherwise, equally good funds). where does QLTE mf fit in your opinion?

19 replies on this article “Related to Quantum Long Term Equity M.F.”

  1. bharat shah says:

    i think , it would be supplement to the topic if one would refer to below link post of subramoney.com (including the comments thereon).
    http://www.subramoney.com/2012/07/a-good-mutual-fund/

  2. bharat shah says:

    as the discussion is getting interesting , i like to add some thing more:
    1. first about transparency issue raised by me as point no.3 of my originally query. i know that the AMC is publishing fact sheet every month , and the a/cs are audited internally and statutory as per laws (of course , as a layman, i do not details.). but what was in mind that as far as equity is concerned , they are giving the details of no. of shares and the value , that could be verified by knowing the closing share price, but for cash and cash equivalent , we have to believe the fig. they give. for manipulation , for more cash and cash equivalents, it would be more vulnerable, that what i think. however i believe that any thing and every thing could be manipulated , and somewhere we have to believe where we want to transact. perhaps to select larger AUM fund over small AUM fund, the expert may think so.
    2.regarding small or big AUM of a fund to handle, i think, it is a relative term. and as i think, still the fund could stick to the process (decided) and deliver on long term there is no problem.of course large AUM should bring the expense ratio down . but why it is not happening, i don’t know.
    3. for not declaring dividend for dividend, though equity funds are for long term investment, QUANTUM AMC , though may be legally right, it is unethical to such investors and raising doubts in other, particularly because now more than 5 yrs completed ,and having good cash and cash equivalent always to their disposal.
    disclosure: in spite i am transfering our investments from two funds to QLTE recently
    3

  3. Jagadees says:

    Thanks for the kind words. I wanted to share a small fact i came across recently. Quantum fund – in addition to following sound investment process, they work frantically to keep the cost for the investors to the bare minimum. We all know that their expense ratio is one of the lowest in the industry. Another way to reduce the cost to investor is by having low portfolio turnover ratio – 16.88% in the last one year – one of the lowest in the industry as far as i know.
    To put that in perspective, Businessline in its review says that, “In last one yr, quantum equity fund just bought 2 stocks into the portfolio and exited 3 stocks!! still it had better returns of -1.9% vs -5.1% for benchmark”

    Regards

    1. Dear Jagadees, thanks for the sharing. Yes this low portfolio turnover ratio is also impacting the performance positively. Few days back on Facebook, there was a discussion on outllok money mutual fund board for the large asset size of HDFC Top 200 & the inability of the fund manager to perform with such huge asset base. Below the very same discussion there was another discussion for very small asset base & problem face by the fund – QLTEF.

      I posted then & there – @ 11K Crore Rs. asset base of HT200 – people are saying too large & for 10Crore+ asset base of QLTEF, people are saying too small to invest.

      Where do you people want to invest in? Please decide. πŸ™‚ πŸ™‚

      Thanks

      Ashal

  4. bharat shah says:

    you are correct Ramesh! thank you.

  5. bharat shah says:

    kudos Jagadees for so comprehensive reply! i never thought you reply so nicely. it is one more discussion i would save in my file , in addition to one in which you discussed the importance of process driven fund management in selection of a good mf for investment. by the way which Analyst Rating-Forward looking Rating, (such as Morningstar.co.in is awarding) would you award to QLTE, gold, silver, broze, neutral, negative or platinum? any way thank you very much to all .

    1. Ramesh says:

      He did that by investing in it. What more do you want?!!! πŸ˜‰

  6. Jagadees says:

    Dear all,
    I think am quite late to the discussion. My two cents.I would like to touch on two topics.

    1. Skepticism regarding cash component in the quantum portfolio:

    A. why do they have very large cash component usually in the range of 10-15%?
    I think it boils down to the individual AMC’s investment process. Some AMC like Franklin templeton feels that investors buy funds only for equity exposure to their portfolio and hence we as AMC should refrain from cash call and be committed to invest fully barring some amount for redemption stuff. But folks at quantum based on their decade old experience in investing FII’s money believe that they can provide better risk-adjusted returns by taking active cash call. People who read their equitymaster’s research report might be quite familiar with their strategy to have fundamental thesis for the stock with intrinsic value for 1year/2year/3year from now . They will initiate position when it is well below its intrinsic value and trim the position once the stock run beyond the intrinsic value (Note: They wont trim it if there is simply a run up in the stock, will trim it only when it runs well beyond its intrinsic value). This time-tested strategy works well in large cap space with established business model. (This is the reason why they never launched mid-cap fund and Ajit dayal is quite honest to admit that we dont feel like we cracked methodology to provide consistent and safe returns in midcap space & its a work-in-progress).

    B. How transparent it is? They release fact sheet every month which includes all the information and one can cross check it. Apart from this, if we approach the quantum fund house for anything regarding transparency, i think they will down to any level to clear all doubts of a investor (in my opinion).

    C. With cash call are they trying to time the market? In my opinion they have never taken cash call based on macro issues like Inflation, QE, Earnings slowdown, Interest cycle etc. When a stock runs well beyond their intrinsic value, they will trim down their position and when it falls below the intrinsic value, they will stack up…. The stock may go up or down after their action – but they never care about it…. For them it is valuation that matters most and i never find them sucking their thumbs with cash in hand when the portfolio stocks/broader market fell too much….. For example: during April/may 2009, just before the bull rally, their cash component were just 2%, when there was significant run up to 6000 levels in nifty due to mad rush of hot FII money during sept-dec 2010, they raised their cash level as high as 22% not because the market will fall – simply because the valuation was too much. When the market fell in feb 2011, they duly brought cash level down to 14% and maintained in that range during the sideways market between mar to nov’11. Again when the market fell in dec’11 and it was all gloomy, they brought the cash level to 6.5%….. when the market recovered in Mar’12 they raised their cash back to 12% range….

    D. Will the fund perform in bull market with this strategy of cash call?
    I think ajit dayal himself explained it very well, ” Quantum Long Term Equity Fund will not do well in bull run. “Why? Because as value managers, the stocks we own will begin to look ‘expensive’. And so we will sell those ‘expensive’ stocks. But we are humble enough to recognise that our selling will have no impact on the market – the stock markets will continue to rise. Remember, in bull markets fear is out and greed is back. Irrational prices will prevail again. As we sell out of stocks, our cash levels will increase. Cash earns us 4% to 5% in a year. That is useless when compared to a roaring bull market when stocks can surge 4% in a day! and hence we underperform”
    For me, downside protection is more important than spectacular returns in bull market. A fund with decent returns on the way up combined with excellent downside protection will help u outperform over a long term….. Also we need to distinguish between irrational bull market (2007) from fundamental bull market (2009)…. there is no excuse to miss the train in the fundamental bull market as in the case of 2009 which quantum did very well…. I would be really worried when quantum outperforms in irrational bull market…..

    2. Are they profitable with the small AUM??

    As dear muthukrishnan pointed out, Quantum AMC provides research services to Quantum mauritius fund which manages FII’s money. In the asset management business there is no distinction between the money managed for FIIs or domestic investors. Basic infrastructure, research team, analysts etc. will be shared facilities – only the sales team will be additional expenditure for their “Direct to investor” platform. At present AMC is quite profitable and dont forget it is highly scalable business. So far in the past 6 years they invested 16 crores in the business and total returns so far is 4.4 crores. Here is their P&L statement from their annual report which is available in their website:

    Year Profit/loss (in cr.)
    2006 -1.16
    2007 -2.27
    2008 -0.17
    2009 0.16
    2010 3.4
    2011 4.93

    I really don’t like the concept of dividend option in mutual fund scheme at all and frankly don’t have much idea about that part.
    Disclosure: My family and friends invested in quantum fund (I think most of the forum members already know this fact by now πŸ™‚ )

    Regards

    1. Muthu Krishnan V says:

      I second jagadees statements and appreciate his elaborate answer.

      would like to add a few points
      1. Ajit mentioned that time to quit QLTEF fund would be when QLTEF out-performs a bull market :). In his path2profit session, he was asked how would investors come to know that quantum is not following the process-driven model and this was his answer.
      2. I personally feel quantum is following benjamin graham’s model of investment. I came to know about graham from this forum and got his book “intelligent investor” from the library.

  7. bharat shah says:

    really you provided again valuable first hand information for me.as such i have highest investment of my family diversified mf portfolio in QLTE (GROWTH)., and i personally experienced their honesty in dealing their stock recommending service( they returned my subscription money as per their terms two times). however i got a little doubtful and i tried to resolve through this forum. thank you all of you again.

  8. bharat shah says:

    @Muthu Krishnan V
    thank you very much for your first hand (i.e. directly from amc’s session) information on the topic.however i think, larger AUM could be any AMC’s goal. i remember, mr. dayal once told in a reply that they are ready to handle big AUM as HDFC 200. as such, for any reason, (may be they started in difficult period for whole mf industry) they did not gather AUM as they deserve.i think , for 100-200 crore AUM , it is really difficult task.

    1. Muthu Krishnan V says:

      the same question was posed to ajit by somebody in the path2profit session. His reply was that they are providing services to FIIs separately and they are quite profitable there. They have been able to provide good profits to these FIIs. He wanted indian investors to enjoy the profits that foreigners are getting and he wants to do it ethically. Their main goal is not to have huge corpus and pocket the resultant huge expense ratio. of course he said he would be happy to see his corpus grow.

  9. bharat shah says:

    @Muthu Krishnan V
    thank you for the valuable information. it is better if you comment over the other points also. i like to have comments for other members also, particularly if Jagdees like to say something.

    1. Muthu Krishnan V says:

      1. already answered
      2. I have attended one of their path to profit session and quantum regretted giving the dividend option. equity investment is for long term and if somebody wants money, they can always withdraw instead of dividend declaration. Giving out dividends will incur cost (handling, postage etc) and this policy saves our money infact.
      3. their website (infact all mf websites) have the fund fact-sheets detailing the complete portfolio. hope the auditors are doing their job in verifying the assets.
      4. qltef has proved itself over the past five plus years. It would not give category highest returns but the risk adjusted returns would be good.
      5. if larger AUM was the goal, quantum could do a lot of things to gather assets like lesser exit load, distributor commission etc. They claim to be an asset management company and not an asset gathering company.

      disclosure: I am an investor in quantum MF.

  10. bharat shah says:

    thank you both of you, Ramesh and Ashal for your reply. i am also investor of both, QLTE and HDFC TOP 200 since i changed my track from direct equity to diversified eq. mutual fund w.e.f. July 1, 2009 and really learn from your thoughts frequently in this forum. thank you.

  11. Ramesh says:

    1. Marginal difference. Also, the overall performance is identical.
    2. Maybe it is their attempt to say that dividend payouts do not make any sense for short term periods. And if you really want dividends, you can go with other funds. Fair enough.

    Also, dividend payout as a critical way to lower the total equity exposure is kind of market timing, which in itself is a hit-or-miss situation.

    Because of their process driven approach, in which they have been consistent (which is a very key factor), they deploy money only when they find reasonable businesses/stocks, otherwise they are happy with a significant chunk in cash. Also, when they do find such stocks, they stick to them for a long period of time (shown in the very low churn rate). So, in short, find good businesses at good value and stick with them. If they cant find, they remain in cash.

    Very confident and consistent approach.

    Also you have to remember the concept of Hot Money. People see their ratings (5 star) and start investing in them. For any reason, if their rating becomes 4 in future or something, they will remove money from there and go to some other 5 starrer. This type of money is Hot Money like a Hot Potato!!! This money does not actually fit in their investment process.

    3. NAV values can be seen daily across papers and sites. Transparency: on their site, they mention even the amount of money paid for transactions. I have not come across any other fund mentioning the amount of transaction charges.

    4. Do not listen to all analysts.

    5. Large AUM means lower charges. But QLTE already has the lowest FMC, with a solid management team.

    [I personally do not have QLTE in my portfolio, since it complicates my holdings, But if I would start from scratch, I would keep it].

  12. Dear Bharat, First a disclosure – I’m investing in QLTEF my personal money.

    1. Regarding the difference in NAV, It’s not huge & fluctuating on day to day basis. The reason may be a slight variation in portfolio.

    2. the fund has mandated itself to invest in Eq. in a band of 65 to 99%. So keeping 5-10% cash subject to market condition is not a bad thing (in fact a good move & the performance proves it).

    3. NAV is declared for each business day, so why it’s not transparent? The valuation of cash or near cash is also considered for NAV calculations.

    4. Just check the performance of this fund for a bull period between April 209 to march 2010 or prev. to 2008 crash & you ‘ll notice the top class performance.

    5. If you are comparing QLTEF’s small AUM base to HDFC Top 200 fund, my dear friend, Again a disclosure – Both these funds are part of my personal portfolio. Should I say more?

    Thanks

    Ashal

    1. Muthu Krishnan V says:

      the different in NAV between growth and dividend options is due to more number of investors exiting the dividend option before 2 years and incurring exit load as compared to the growth option. The exit load charges are added back to the fund and hence the difference. This information is from quantum itself.

      1. Dear Muthu, thanks for this clarification regarding the difference in NAV.

        Thanks

        Ashal

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