Quant Investing

(Article by Karthik Kumar, Portfolio Manager- Alternative Equities, Axis AMC)

 

As asset management industry has grown, the product offering too has expanded in scope from traditional large cap / mid cap / flexi cap funds to relatively evolved offerings across platforms including mutual funds, PMS and AIF’s. This increase in the breadth of product profile has provided investors with better avenues that address their requirements. The latest addition to this list are Quantitative Funds that while being at a nascent stage are beginning to get investors’ attention.

Quantitative methodology employs a systematic approach of investing, that is data intensive and leverages on insights from mathematical & statistical models. With increased depth in our markets and a longer history these products are well positioned to take off. Unlike popular perception these are not based on price action alone but also can integrate bottom-up stock level data on growth, valuation, earnings impact, minority shareholder treatment etc.

Further, it can be employed to manage range of strategies from Low cost (Smart Beta) portfolios to full-fledged active long only, Long-short & Managed futures strategies.

We have been practising quantitative strategies in our markets and can state confidently that the approach is robust and can perform well across cycles. Aside from being a unique offering other advantages of a quantitative process includes ability to monitor a broad cross section of stocks and an integrated risk management system.

We have been working on quantitative solutions at Axis Asset Management Private Limited (“Axis AMC”) and below is output for a long-only strategy benchmarked to BSE 200 based on historical back-test from 2007-2020.

Source: Axis AMC Internal Research |  Returns as of Dec ‘21

It not only had superior returns but also lower risk, lower beta and better Sharpe ratio. We have been managing live money at Axis AMC using this approach since mid-2021 and our experience is in line with the back-test results.

We believe that these strategies not only capture newer sources of return but also do a great job in adding diversity to a client’s portfolio and hence investors may actively consider adding these strategies to their portfolio.

Lastly, we at Axis AMC have built a product suite based on a quantitative approach and would encourage interested parties to reach out for further details.