Oldest quant fund in India is revamping its model

The vehicle was established in 2008 as the Reliance Quant Fund, the first of its kind in India. It has averaged an annual return of about 5.6% over the past five years, compared with about 9% for the Nifty

Nippon Life India Asset Management Ltd. is adjusting the methodology of its quant equity fund in an attempt to bolster returns in the face of growing competition.

The Nippon India Quant Fund is looking at adding more factors into its investment model, Ashutosh Bhargava, who manages the fund, said in an interview at his Mumbai office. Measures introduced by Bhargava so far include increasing the frequency of churn in the portfolio and picking stocks from the broader S&P BSE 200 Index rather than the NSE Nifty 50 Index.

“We are modifying the model and have also widened the universe of investable stocks as part of efforts to improve the performance of the fund and attract more investors,” said Bhargava.

Quant funds globally have delivered uneven returns in recent years as they’ve struggled to cope with market volatility. That has spurred growing doubts over various quant strategies that have been grappling with underperformance and competition from cheap exchange-traded products.

“Today almost all fund houses in India offer passive investing,” said Arun Kumar, head of research at FundsIndia.com. “The same will happen with quant funds, but it will take some time, the trend is just picking up.”

Bhargava contends that, as quant funds help investors gain access to a broad array of stocks at lower fees than traditional active funds, more Indians will invest money in such instruments. Peers including Tata Mutual Fund and DSP Mutual Fund have recently launched quant funds of their own, adding impetus to the strategy overhaul.

Nippon Life India’s assets under management have shrunk to about 250 million rupees ($3.5 million) from a 2015 peak of 13.8 billion rupees. The DSP Quant Fund has garnered AUM of about 1.5 billion rupees since launching last June, according to data from FundsIndia.com.

The Nippon India Quant Fund fund has been caught off guard by sudden changes in market direction. It was outperforming the BSE 200 at one point last year until a surprise corporate tax cut last September and ensuing market rally reversed that. In considering the fund’s investment model, Bhargava knows short-term outperformance won’t be enough.

“Investors will come only when they see good returns over a while,” he said.