SBI Mutual Fund on Tuesday floated a Multi-Factor Quant Fund which focuses on four primary factors: growth, value, quality, and momentum. The SBI Quant Fund is an open-ended equity scheme that follows a Quant-based investing approach. Growth stocks are characterised by high earnings growth, while value stocks are considered undervalued. Quality stocks demonstrate strong returns on equity, consistent earnings, and low levels of debt. Momentum stocks are chosen based on their price performance.
The New Fund Offer (NFO) for this scheme will be available for subscription from December 4 until December 18, 2024. Following the initial offering period, the scheme will be open for continuous sale and repurchase within five business days from the allotment date.
A quantitative fund, or quant fund, is an investment vehicle that selects securities based on numerical data derived from quantitative analysis. These funds are characterised as non-traditional and passive in nature, employing customized models developed through software programs to make investment decisions. In a typical MF scheme, the fund manager is responsible for selecting which stocks to trade. However, in a quant fund, these decisions are made automatically. The fund establishes a series of rules that dictate when to purchase stocks, as well as rules for selling them.
SBI Mutual Fund has adopted a multi-factor strategy for its potential to harness the benefits of various factors, potentially delivering superior returns compared to single-factor focused funds. This approach seeks to achieve a well-diversified and balanced portfolio by integrating momentum, value, quality, and growth factors. The fund house's model is designed to identify stocks based on these factors using data analytics.
The investment scheme targets long-term capital appreciation by investing in equities and equity-related instruments selected through an in-house quantitative model. The fund's performance is evaluated against the BSE 200 Total Return Index.
Key features:
SBI Quant Fund: This marks the inaugural launch of a quant fund by SBI Mutual Fund, which manages assets totaling Rs 11 lakh crore, marking its foray into the quant space.
Portfolio Composition: The fund primarily allocates investments in equity instruments chosen through a rule-based quantitative model, supplemented by other permissible securities to enhance diversification.
Benchmark: The fund's performance is measured against the BSE 200 Total Return Index.
Fund Managers: Managed by Sukanya Ghosh and Mr. Pradeep Kesavan, who specifically oversees the management of overseas securities within the fund.
Factor-Based Investing: A strategy that involves selecting securities based on specific characteristics, or "factors", historically associated with higher returns.
Investment strategy
Investment Strategy: Utilising a multi-factor active fund approach that centers around Momentum, Value, Quality, and Growth, the fund employs an objective, rule-based method for constructing portfolios, guided by an in-house quant model.
The fund's investment strategy includes selecting stocks from the top 200 companies based on market capitalisation and evaluating them on four key factors. It will primarily focus on large-cap and mid-cap companies and will be benchmarked against the BSE 200 TRI index.
Asset allocation
> The fund invests primarily in Equity and Equity-related instruments, selected through a quantitative model, with a range of 80%-100% of its assets allocated to this category. > It may also allocate 0-20% of its assets in Equity and Equity-related instruments of companies not included in the quantitative model. > Additionally, the fund may invest 0-20% of its assets in Debt and Debt-related instruments, including securitized debt (up to 20% of the debt portion of the scheme), debt derivatives, and money market instruments, such as tri-party repos. > Furthermore, the fund may invest 0-10% of its assets in Units issued by REITs and InvITs, adhering to SEBI limits specified periodically. > The scheme will allocate funds to mutual fund schemes, including domestic and overseas ETFs, up to 20% of the scheme's net assets. Additionally, the fund may explore investment opportunities in foreign securities, such as ADR/GDR/Foreign Equity, Overseas ETFs, and Debt Securities, within regulatory limits. > These investments should not exceed 35% of the scheme's net assets and will adhere to the maximum limits allowed at any given time. For additional information on asset allocation, please consult the Scheme Information Document.
Allocation setting
The algorithm will dynamically adjust the weights for the four factors - momentum, value, quality, and growth - based on their relative performance. As the better performing factor's weight increases over time, the weights of the other factors will decrease.
To maintain balance, allocations will be returned to equal weight of 25% each when the weight of the leading factor reaches 35%. Additionally, rebalancing may also occur if the weight of the underperforming factor falls to -8%.
"The SBI Quant Fund, based on an in-house multi-factor model incorporating Momentum, Value, Quality, and Growth factors, provides a strategic opportunity for investors to diversify their portfolios with an aim to achieve superior risk-adjusted returns," said Nand Kishore, Managing Director & Chief Executive Officer, SBI Funds Management Limited.