SBI Mutual Fund Launches Multi-Factor Quant Fund: Growth, Value, Quality, and Momentum at Its Core
SBI Mutual Fund has introduced its first Multi-Factor Quant Fund, an open-ended equity scheme focusing on the four key factors of growth, value, quality, and momentum. The fund aims to harness these factors for superior risk-adjusted returns, using a quantitative, rule-based investing approach.
New Fund Offer (NFO) Details
The NFO period for the SBI Quant Fund is open from December 4 to December 18, 2024. Post-NFO, the scheme will be available for continuous sale and repurchase within five business days from the allotment date.
What Is a Quant Fund?
Quant funds use a data-driven, algorithmic approach to investment decisions. Unlike traditional mutual funds where fund managers manually select stocks, quant funds rely on predefined rules and customized models to decide when to buy or sell securities.
SBI Mutual Fund’s Multi-Factor Quant Fund employs this quantitative strategy, integrating multiple factors—momentum, value, quality, and growth—into its stock selection process.
Key Features of the SBI Quant Fund
- Multi-Factor Model: Focuses on Momentum, Value, Quality, and Growth to create a balanced and diversified portfolio.
- Benchmark: The fund will track the BSE 200 Total Return Index for performance evaluation.
- Portfolio Composition:
- Primarily invests in equity instruments selected via a quantitative model (80%-100%).
- May allocate up to 20% to other equity instruments outside the quant model.
- Allows investments in debt instruments, REITs, InvITs, and foreign securities.
- Dynamic Rebalancing: The algorithm adjusts factor weights based on performance, returning to equal distribution when any factor dominates.
- Fund Management: Managed by Sukanya Ghosh and Pradeep Kesavan (oversees overseas securities).
Investment Strategy
The fund follows an active multi-factor strategy, evaluating the top 200 companies by market capitalization. Each company is assessed across the four core factors:
- Growth: Stocks with strong earnings growth potential.
- Value: Stocks considered undervalued based on market metrics.
- Quality: Stocks with high returns on equity, stable earnings, and low debt.
- Momentum: Stocks showing robust price performance trends.
Asset Allocation
The fund adopts the following asset allocation strategy:
- 80%-100%: Equity and equity-related instruments based on the quantitative model.
- 0%-20%: Equity outside the model or debt instruments, including securitized debt.
- 0%-10%: REITs and InvITs.
- Up to 20%: Domestic and overseas ETFs.
- Up to 35%: Foreign securities like ADRs/GDRs and global ETFs.
Allocation Rebalancing
- Factor weights adjust dynamically based on performance.
- When a leading factor exceeds 35% weight, allocations reset to equal distribution (25% each).
- If any factor underperforms significantly (below -8%), rebalancing is triggered.
Why Choose the SBI Quant Fund?
According to Nand Kishore, MD & CEO of SBI Funds Management Limited, this fund is an ideal choice for investors seeking a diversified portfolio with potential for superior risk-adjusted returns. Its in-house multi-factor model ensures a disciplined, data-driven approach to investing.
Benefits of the Multi-Factor Approach
- Diversification: Balances the portfolio by leveraging multiple market factors.
- Reduced Bias: Eliminates emotional or subjective decisions by relying on algorithms.
- Potential for Higher Returns: Combines the strengths of growth, value, quality, and momentum stocks.
- Rule-Based Rebalancing: Ensures allocation remains optimal over time.
The SBI Quant Fund represents SBI Mutual Fund’s foray into quantitative investing, offering investors an innovative way to achieve long-term capital growth through a carefully crafted, multi-factor strategy.
