SBI Mutual Fund is the largest in the country. It has just launched a new quant fund. This fund uses a multi-factor approach to pick stocks. This fund will use rules-based and data-driven analysis to make investment decisions.
The SBI Quant Fund opened for subscription on December 4, marking the fund house’s entry into the quant space.
So, what’s the deal with this SBI Mutual fund?
Quant funds, like the SBI Quant Fund, use quantitative analysis to make investment choices. This fund has its own multi-factor model. It considers factors like momentum, value, quality, and growth. These factors help improve performance in different market conditions.
DP Singh, the deputy managing director and joint CEO of SBI Fund Management, the company behind SBI Mutual Fund, explained that the fund aims to deliver good returns while minimizing biases. The fund will focus on the top 200 companies by market capitalization, ranking them based on various factors. Stocks with higher liquidity will carry more weight in the fund.
Overall, the SBI Quant Fund is all about using data and analysis to make smart investment decisions. It’s a new and exciting addition to the world of mutual funds.
The fund has a mandate to invest in overseas securities. Currently, we are looking to avoid this asset class.
“We decided to go with a multi-factor framework because it ensures diversification and allows us to capture different factors based on market cycles. This will help us reduce drawdowns and ultimately achieve a better risk-adjusted return,” said Sukanya Ghosh, fund manager of SBI Quant Fund.
The investment strategy of SBI Quant Fund will be dynamic, adjusting the weight of factors based on performance. The framework also sets limits for outperformance or underperformance of a factor, readjusting weights accordingly.
The model’s dynamic allocation allows for quicker recovery by adapting to the best-performing factors.
However, the success of quant funds relies on the accuracy of underlying models. Flawed models can lead to significant losses, as seen during the covid-19 pandemic. It’s important for investors to be aware of potential risks if market dynamics shift unexpectedly.
SBI Quant Fund aims to bridge the gap between active mutual funds and passive index tracking. This is ideal for investors seeking a balance between active fund manager risk and passive index tracking.
The multi-factor approach is gaining popularity in fund management worldwide, with investors increasing their investments in such strategies. In India, there are currently 10 active quant fund schemes, each with its own unique framework for stock selection and elimination. SBI Quant Fund stands out in this space with a robust model that has been thoroughly tested and is now ready to be put to the test in the markets.
Experts believe that the multi-factor approach used by SBI Quant Fund has the potential to offer better risk-adjusted returns. According to Nirav Karkera, head of research at Fisdom, the strategy optimizes for various factors and adjusts based on market cycles.
It will be interesting to see how the quant model performs across different market cycles. Once SBI Quant Fund goes through a few cycles, investors may have more confidence in allocating to it. The new fund offer from SBI Quant Fund will be open for subscription until December 18.
Stay tuned for more updates and insights on the stock market!
For more insights on investing in the Indian stock market, check out resources like Moneycontrol and NSE India.
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