SBI Quant Fund marks the market leader’s foray into the rapidly growing quant space. The new fund’s proprietary algo is powered by a multi-factor model that has been tested and finetuned in house over the last 9years.
The algorithm tracks all 4 key factors – growth, quality, value and momentum – and assigns weights to each factor based on market performance and other filters. Weights are managed within a band of 25% +/- 10% for each factor and when any one factor hits either the top or bottom band (signifying an extreme), weights are reset to equal for all 4. This often pre-empts the inevitable mean reversion that follows such extremes.
Stocks that score well on a cumulative weighted average score are considered for the portfolio. Active sector limits (+/- 8-10% from benchmark BSE 200 sector weight) and active stock limits (+5% over benchmark weight) are aimed at ring-fencing risk while giving sufficient latitude to drive alpha.
Portfolios are rebalanced monthly and no subjective fund manager decisions influence portfolio decisions. Since this is a proprietary model driven portfolio and does not ride off any published indices, it is classified as an active quant fund and not a smart beta passive.
Being an active fund, the AMC can finetune its model when it deems it appropriate. Much fine tuning has however been done since 2015 when this model commenced being tested and monitored in house.
The fund’s universe is the top 200 stocks – which cuts out small caps, but allows for scale as liquidity will always be a paramount filter in stock selection.
Expect the fund to be large cap tilted with perhaps 70%allocation to large caps and 30% to midcaps.
Sukanya says this fund can be a smarter option for investors who prefer having core long term allocations to passive index funds, as it has all the discipline related qualities of a passive fund with the added potential and track record of delivering healthy alpha over BSE 200 with its multi factor model.