Indian Quant Fund Outperforming Sensex in 2020
Due to the avoidance of volatile shares and focusing on sector diversification this year a $69 million Indian quant fund has delivered more than double the returns of the nation’s benchmark stock index.
The DSP Quant Fund, the largest among a handful of quant funds in India’s $364 billion asset management industry has returned more than 19% in 2020, compared with a 9.3% gain in the S&P BSE Sensex Index, which surged to an all-time high on Friday.
Aparna Karnik, head of risk and quantitative analysis at DSP Investment Managers Pvt. in Mumbai said, "The fund generally was overweight on the sectors which did relatively better such as IT and pharma."
She further added, “Remaining diversified across sectors and factors, not chasing momentum and staying low volatility has helped keep up a consistent performance."
A “tilt towards high-quality names" in sectors other than tech and healthcare also helped the fund’s performance, Karnik said. That’s because the market in India was less polarized versus the U.S.The system then scores the remaining stocks based on factors, giving weightings of 40% each to quality and valuation, and 20% to growth
“The fund doesn’t chase momentum," said Karnik. “That’s a mistake that both humans and models make."
“This difference in how the DSP and Nippon India funds are structured, focusing more on quality and less on value, to begin with, partly explains why they have performed better," said Rupal Agarwal, a quantitative strategist at Sanford C. Bernstein in Mumbai.
There are doubts if quants can sustain the outperformance with their current strategy.
“There is no precedence for the current environment: uncertainty is very high and predictability is very low," said Ashutosh Bhargava, who manages the Nippon fund. “If I have to choose a couple of factors which will do well in 2021, I would say value and sentiments may do slightly better than quality, low volatility and momentum."