Prabhudas Lilladher's Siddharth Vora explains how quant investing will help generate higher returns for retail investors
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00:00 tuning in with me is Mr. Siddharth Vohra, who is the Fund Manager and Head of Investment
00:04 Strategies at Pravdha Sli Radar. Thank you so much, Siddharth, for taking the time to
00:10 talk to us. You know, we were talking about the whole concept of quantitative investing.
00:15 And you know, as far as India is concerned, it's relatively new, right? Where does it
00:19 stand when you talk about active as well as passive? And you know, how does it actually
00:22 work?
00:23 So, in terms of size, we've seen that in India, 20% or so is managed passively. Around 0.5%
00:36 is managed quantitatively. And almost 80% or 75 to 80% is managed actively. When I stack
00:44 these numbers up against US, what I've seen is around 35% is managed quantitatively, close
00:51 to 50% is managed passively, and less than 20% is managed actively. So obviously, the
00:58 trends are different. And India has a huge, huge potential in terms of growing its assets
01:03 that are managed more systematically using quantitative methods.
01:07 Right. And as a fund manager, you know, what do you exactly like, where do you stand, right?
01:12 Because when we talk about active, of course, it's very actively managed by fund managers
01:15 and even passive. But when you talk about quantitative, it's mostly related to AI and
01:20 you know, like, as you mentioned, man with machine. So how does the man work with the
01:24 machine in this case, especially when you talk about, you know, portfolio management,
01:28 because certain decisions obviously have to be made, you know, in certain ways.
01:32 So you asked, or you spoke about two, three things. One was you mentioned AI, and the
01:38 other is the whole concept of man with machine and portfolio management. So AI is something
01:43 we are staying clear from, what we rather want to do is blend real intelligence using
01:50 help of machines rather than trust artificial intelligence. So right now, everybody's only
01:55 talking about artificial intelligence, we are saying no, with fortunately, with the
02:00 pedigree of research that we have surviving in the markets for 80 years as an organization
02:05 and with the kinds of teams that we have, we want to blend real intelligence, investing
02:10 insights and wisdom gained over the years, but use machines, technology, quantitative
02:16 techniques to enhance this traditional research and traditional investing frameworks. That
02:21 is what we're trying to do here. And when we talk about portfolio management services,
02:26 again, my job is to think of the strategy, think of each and every layer of the strategy,
02:33 build a team of people, competent people who understand the domain of finance, investments,
02:38 accounting, macros, fundamentals, technicals, build a team like this, and make sure that
02:43 I can program and test this whole strategy out. That is the role of a person like me,
02:49 when it comes to managing funds.
02:50 Right. And you know, you recently launched the new AQUA, you know, fund that was mostly
02:57 based on the quantitative investing approach, right? How has the performance been? And what
03:01 kind of alpha returns? Are you seeing that? And you know, what kind of trend that you're
03:05 seeing in you know, this space?
03:07 So touch wood, we launched it in June, towards the end of June. And as of 30th August, we've
03:15 generated absolute returns close to 15.3%. And our alpha has been close to eight and
03:21 a half percent, or 9%, so to say. And obviously, that's significant alpha. But the good part
03:27 about the alpha is that in the month of July, in the month of August, and now as we move
03:35 into September, the alpha has been generated in each of those shorter timeframes as well.
03:40 So the alpha is granular, more than 75% to 80% of our stocks have outperformed the benchmark.
03:46 Rather than few stocks leading to big gains, granular portfolio is doing very well. And
03:53 that is why our confidence is very good. And the good thing is, in the month of August,
03:59 the markets were flat at negative 0.6%. We were up 6.8% for the month of August as well.
04:07 So we've generated close to four and a half percent alpha in the month of July, and six
04:11 and a half, 7% alpha in the month of August as well. And that is, you know, sticking to
04:15 the promise, adaptive, quantitative, unbiased alpha, the whole mission of AQUA is to deliver
04:21 sustainable alpha to investors.
04:24 So in this approach, you know, like, as said that, it mostly quantitative investing is
04:28 mostly like, you know, beating the benchmarks, but that obviously cannot be the case all
04:32 the time. Yeah. So, you know, what are the kind of challenges that you would face? Because
04:36 still in a very initial stage of, you know, trying this approach, right? So as a fund
04:41 manager, and as you know, like looking to into the entire, you know, industry, I'm just
04:46 talking about a quantitative investing approach, the challenges that you are looking at?
04:51 So there could in everything new and everything old, challenges are a part and parcel of the
04:56 business. Whether I'm managing funds actively, I would face challenges of getting my sector
05:01 called right, sector called wrong, stock called wrong, my style selection is wrong, my macro
05:07 view is wrong. So many things can happen, right, even in the traditional format of managing
05:11 money. When we come to the quantitative format of managing money, I think the levels of conviction
05:18 and clarity and reliability I feel are slightly higher, because you're not only able to go
05:24 by your intuition, or experience or wisdom, you're actually able to test this out through
05:31 cycles, which means if I believe a certain type of sector should do well, or a certain
05:37 parameters in few stocks should make them perform well, I'm able to test this out through
05:43 and through market cycles. So the power that quant gives us is basically converting your
05:50 thoughts into ideas into hypothesis input, testing that hypothesis, which is then a strategy,
05:57 rather than just going, you know, based on your gut or intuition and managing money that
06:01 way. It's systematic.
06:03 Right. But also, because I think, historic returns and historic value something that
06:09 you know, is looked at, right? So are there chances of missing out the uncertain events
06:12 that you know, like the, it obviously cannot capture something like that, does it happen?
06:18 So if it's a AI, ML, or black box based model, what would happen is, it would only feed or
06:28 feed from the past data and try to capture trends. But if an event has not happened in
06:34 the past, it will not be able to react to it in the future. What we have done instead
06:39 is take examples and case studies of markets, but try to conceive their impact from a numerical
06:49 point of view. What that means is, I have defined rules for everything. So if there
06:55 is a war somewhere in the world, or if there is COVID, or if there is any political uncertainty,
07:01 or if some bank in us goes away, irrespective of what is the event, that impact can be converted
07:07 into numbers. So when we talk about quant, we are not concerned with what is the source
07:13 of risk, we are concerned with the fact that there is risk which we can detect. And if
07:18 we can detect the risk in numbers, we can act on it.
07:22 You know, I mean, still, it's in a very initial stages and as you said, the AU size and the
07:26 whole capture market is also very, you know, minimal. So when, like, do you see it as a
07:32 very big opportunity as well being in this space and also for investors specific, you
07:36 know, like, how do you think it will help them?
07:38 If I didn't see it as a huge opportunity in India, I would not put my entire life behind
07:44 this and I would not put my organization's key future mission and vision around quantitative
07:50 asset management. And as I told you, right, India is managing less than 0.5% of money
07:56 using quant methods, this number can go to 10, 15, 20, 30, 40. At the same time, the
08:02 industry is also growing. So this is an industry where we believe there is market size gain
08:08 and market share gain. Both can be batting for us. And that is why we believe this is
08:13 a huge opportunity for us.
08:14 All right. Thank you so much, Siddharth, for talking to us.
08:16 Thank you so much. It is a pleasure.
08:18 Thank you.
08:19 Thank you.
08:19 Thank you.
08:26 [BLANK_AUDIO]