UTI’s new Quant Fund is an actively managed fund that overlays factor based top down allocations over factor based bottom up stock selection with a risk management framework that allows significant leeway from benchmarks without getting overly concentrated in any one sector.
Fund manager has discretion in exceptional circumstances like corporate governance events to remove a stock from the portfolio – again as a risk management measure.
This fund – and its growing tribe of actively managed factor based funds will start competing with multicap and flexicap funds for core holding allocations in equity portfolios, offering a dynamic factor based approach instead of dynamic cap based approach to portfolio management.
The top down algorithm focuses on finding pronounced market tilts towards either value or quality and when it finds a skew building up, it steps up allocation to that factor in phases upto 70% of portfolio. The balance is deployed between momentum and low volatility.
When no such definite skews become visible, larger allocations are made to momentum factor.
The model is currently 70% allocated to quality, 0% to value and the balance 30% split between momentum and low volatility.
This model is being used in UTI MF’s successful multi asset allocation fund’s equity component – and is now being rolled out as a 100%equity product in this new Quant Fund. The model has established a strong track record of delivering healthy alpha over market over long periods of time.
Bottom up stock selection is run across over 350+ stocks foreach factor at a time to determine the best stocks from each factor. These stocks then go into the portfolio based on top down factor weights.