Secret behind stellar performance of India's oldest, smallest quant fund

Even as profit expectations got smashed due to the pandemic, the Nippon India funds model fared better as it didn't have earnings estimates in its quantitative model.

India’s oldest equity quant fund that offered lacklustre returns for years outperformed most of its peers in 2020 amid the decade’s worst market rout. The secret lies in its investment model.

The 12-year-old Nippon India Quant fund, which is also among the nation’s smallest, dropped about 15 per cent this year, compared to a 27 per cent decline for the benchmark S&P BSE Sensex. When India shut down its economy to check the spread of coronavirus, the fund fared better than nine out of 10 equity mutual fund plans, while the sector as a whole clocked an average loss of about 19 per cent, data compiled by Bloomberg shows.

Nippon’s model places half of the emphasis on growth and quality factors while picking stocks, Ashutosh Bhargava, who manages the Rs 209 million ($2.8 million) fund said in an interview. Since the lockdown started in March, the fund had increased investments in stocks of IT firms and consumer goods makers. However, once valuations for consumer-oriented companies reached historic highs, the model dro-pped them in favour of pharmaceutical manufacturers.

Even as profit expectations got smashed due to the pandemic, the Nippon India funds model fared better as it didn’t have earnings estimates in its quantitative model, Bhargava said. Just five of the 18 Nifty 50 companies that have reported quarterly results so far this season have beaten analyst estimates.