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Mutual Fund Review: QUANTUM Long Term Equity Fund

With its value-investing strategy and large-cap orientation, Quantum Long Term Equity looks to be a suitable bet for long term investors


QUANTUM Long Term Equity Fund is a consistent performer since its launch in March 2006. Though it is debated that the performance is due to its low asset under management (AUM) at 62 crore, contrary to the belief, the funds strategy of a buy-and-hold value-based portfolio paid off.


PERFORMANCE: In a small period, the fund has succeeded in surpassing the returns of many of its well-established peers. Though in the initial years, the fund did not give outstanding returns in the bull market, it always restricted its downfall in the bearish market. This ability to restrain its fall has helped the fund gain an edge vis-a-vis the indices over the three year period


    For instance, in 2008, which was one of the worst years for the equity markets in recent times, Quantum Long Term Equity's net asset value fell by 46% as against a 51% fall in its benchmark index Sensex. In 2009, while the market made a dynamic recovery the fund also delivered outstanding returns of about 103%, much better than 81% gain in the benchmark. The fund also outperformed the indices by a considerable margin in 2010.


    Today, the scheme stands out as one of the top performers with 38% absolute gains over the past three years. In comparison, the Sensex and the Nifty failed to earn returns during the said period. The fund has also outperformed the average returns of the category of diversified equity schemes.


PORTFOLIO: Though the fund started off as a large-cap fund, it changed its complexion to multi cap now. However, the portfolio is quite concentrated with just about 22 stocks. The fund manager follows the strategy of buy-and-hold strategy and so almost 15 stocks have been a part of the portfolio for more than two years now. These include some prominent companies like Bharti Airtel, HDFC, Infosys, ONGC and TCS. As far as the sector composition is concerned, Quantum Long Term Equity Fund has a high exposure in financial and technology sectors. In 2007, the fund was quite bullish on IT sector despite the fact that tech stocks were reeling under the pressure of rupee appreciation. However, this exposure was saving grace in 2008.


    The fund has recently reduced its exposure in FMCG and oil & gas sectors significantly and pulled out of the healthcare sector, which is a low beta sector.What distinguishes the fund is its high cash call. The fund manager has increased cash holdings to 21% of the portfolio. This is quite intriguing for a fund whose cash and debt exposure in any single month never exceeded 5% of the portfolio even in the meltdown times. This reflects that the fund manager is waiting for right valuations to take fresh exposure.


OUR VIEW: Quantum Long Term Equity has rewarded its investors over the long term. Its large cap orientation and investment strategy is apt for a risk-averse investor. Also, the fund is one of the cheapest schemes available in terms of expense ratio. However, this does not hold true for investors who intend to exit within a year since the exit load of the fund is as high as 4% compared with 1-2% for other schemes in the equity diversified category.

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