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00:00Hello, and thanks so much for joining in. You're watching Profit Insights and my name
00:12is Alex Matthew. In the mutual fund space, there are a few mutual funds that stand out
00:18in terms of the kind of growth that they have managed to achieve over the past year and
00:23a half to two years and one of them stands out in particular and that is Quant Mutual
00:28Fund. It has seen a rapid increase in assets under management and it has also helped that
00:35its mutual fund schemes are among the top performers in quite a few categories. Now
00:40off late however, there are a few questions that have been raised with regard to regulatory
00:45issues. Of course, towards the end of June, you had a SEBI investigation that came to
00:52light and the fund house has said very clearly that it is collaborating, it is sharing data
00:59with the Security and Exchange Board of India and it has been transparent. To that end,
01:04we've got Sandeep Tandon, the founder, the Managing Director and Chief Executive Office
01:08of the fund house joining in to talk about some aspects and also talk about how markets
01:13stand at right now, what his strategy is and what his team's strategy is. Sandeep, thanks
01:19so much for taking the time and pleasure speaking with you. Yeah, thanks for inviting
01:23us. Now I understand that several aspects of this SEBI investigation can't be spoken
01:28about Sandeep because this is of course an evolving situation but there is one thing
01:34that I want to get clarity on which is that an FAQ was sent out to unit holders at the
01:41end of June in which the first question said that it was a regular investigation and then
01:48a few days back there was a corrigendum that was sent out to those same investors or unit
01:53holders where it said that it's not a regular investigation and it is in fact a search and
01:59seizure which the interpretation is that it is more significant, it is more serious. Why
02:06was there a difference between those two communications? I tell you, first of all, we generally as
02:12a policy don't want to comment on some of the regulatory aspects. Whatever comments
02:17was required from the disclosure we have given, our compliance and the legal team felt
02:23more clarification was given because some queries were there, we have given and we don't
02:26have to add anything beyond that because related to regulatory we generally don't want to comment
02:30on that and we have shared whatever was need to be shared with all the investors in a very
02:36transparent manner. Fair point. And of course we will see where this goes going forward.
02:43The question is, and some of your investors and unit holders will also be wondering,
02:48have you had to deal with redemption pressure? What is the kind of selling that you're seeing?
02:54And I'm guessing based on the kind of data that you've shared, it's quite comfortable.
03:00Yeah, we had some redemption in the initial fact to be very candid with you. We started
03:06accepting public money in September 2020 onwards and since then I don't think we have any single
03:12day redemptions. So I think investor has really liked us the way we have managed their
03:18money and the return, the superior risk adjusted for returns which we have given. So they have
03:22been with us for, that's the reason this family has grown to now 80 lakhs investors or 80
03:28lakhs folios we have. So we have not seen any sort of pressure in the right for many
03:33years. But yes, after that any noise come or any clarification come is bound to happen
03:38in some small for a few days, there was redemption. But if you really look at last three weeks,
03:43now this episode is over. And we have seen hardly 600 odd crores outflow which we have
03:49seen in last two weeks as net inflows. Okay, when yesterday also we have net inflows. So
03:54I don't see it was a few days phenomena, which happened and now life is back to normal in
04:00terms of the way activities used to be businesses anyway was always normal. It was never impacted
04:05even for a day. Sandeep, would I be right in understanding that you've more or less
04:11used cash to deal with these redemptions, since it was a relatively small amount?
04:15You have to understand, we anyway when this episode happened, we have nearly 10,000 crores
04:20of cash in our overall portfolio. So we didn't have to raise anything and the redemption
04:25was not that meaningful, which market anticipated. In that proportion, it is hardly anything.
04:32In three weeks, if you have lost 600 crores, which is less than 1% of your AUM or 0.9%
04:37of your AUM, it's not very meaningful numbers. See, you have to understand that the way we
04:42manage our money is very different from the industry. Most of our schemes have hardly
04:47any exit loads. Okay, for 15 days exit loads most of the schemes have, which means the
04:52way we manage money, our portfolio has to be liquid. Anybody can participate and any
04:56can exit at any point of time. We don't take very large load factor or the exit loads,
05:02which we will talk about and lock-in period for longer period of time, which is not the
05:06case. So anyway, our portfolios are fairly liquid. That's the way we manage money. Since
05:11we are largely analytic firm, apart from valuation analytics, we do give a lot of weightage on
05:16the liquidity analytics. If we understand the liquidity of the markets and the global
05:19economy, then we do analyze our own liquidity also. So portfolios as a strategy are all
05:26always going to be very liquid. Am I correct? I was looking at some data, it was saying
05:33that about 2% of assets under management for the fund house as a whole in cash, is that
05:38wrong or is that more or less accurate? 2% of the fund house in the cash. It could be
05:45even higher. We generally keep 4-5% cash for any opportunity, not for any specific thing.
05:50As I always say that we always have a very large amount of cash because we are opportunists.
05:55We don't mimic indices. So we are active money manager. We take the fees of active
06:00money manager and we don't offer quasi-passive products. And that's one of the reasons why
06:07active managers globally have the relevance as getting losses as compared to passive manager
06:11because everybody's taking fees of active manager and offering passive product. We are
06:16true active money managers and we do keep good amount of cash at any given time because
06:22we are very opportunists. We are unconstrained fund house, style agnostic, market cap agnostic,
06:27sector agnostic. Whenever we see any great opportunity and we see superior risk adjusted
06:32opportunity is there, we tend to participate. We only can participate if you have a cash
06:36at given time. So 5-7% cash is a very normal thing which we keep in our portfolios.
06:41Okay, understood. So I'm actually curious about that portfolio as well and we'll get
06:47into some of those aspects as well Sandeep. But before we do, the last time we spoke was
06:53immediately after the introduction of this stress test and you spoke about highly liquid
06:58portfolios and there have been some comments about your recent result versus the previous
07:04one where the number of days has gone up. If I remember correctly, the last time we
07:08spoke, you said that it's not necessarily a very clear indication of the liquidity of
07:12the portfolio. Can you explain though how this works?
07:16You have to understand what it is. First of all, that calculation what regulator has told,
07:24it's obviously capture the daily volume. So you are looking at the percentage of volumes.
07:29So as when market becomes slightly illiquid, your average volumes will go to bound to fall.
07:36And if average volumes were bound to fall, then by any your report card will look marginally
07:40bad. It's not only for us, it's the case for the entire industry because they say everybody
07:44uses the same number. Okay. So it's bound to happen. If market, let's say going forward,
07:50become even more illiquid and the impact force moves up sharply, this numbers can deteriorate
07:56a bit more. But what happened, you can, again, this number has no relevance if you look at
08:01an isolation. Okay. You look, I have to look at in totality. And as I said, our totality
08:06over today are like 54, 55% portfolios, fairly liquid. Okay. And when I'm talking about,
08:12is this a large gap in cash and the gold or silver or ETFs, which we have, you know, apart
08:17from our mid and small portfolios are fairly liquid. So it's a continuous exercise. See,
08:22I tell you, the way you have to rebalance and manage your portfolio, ultimately you
08:27have to generate alpha also. If you just keep everything in a very liquid names, the probability
08:32of making extra alpha will not be there. So it's a fine balance, which is required
08:37based on the risk on and risk off environment. And accordingly we do take those calls.
08:42Yeah. I'm curious about, so let's get into the portfolio strategy as well then. And I've
08:47primarily been looking at Sandeep, your small cap, mid cap and your active fund, which is
08:52your FlexiCap fund. And I'm just curious about what the factors are telling you, because
08:58as I understand it, your fund house looks at factors to determine buy and sell triggers,
09:04correct? So what are those factors telling you about where valuations stand, for example,
09:10right now, and what pockets of opportunity do they exist or are the factors completely
09:15out of whack right now?
09:18So let me give you, let me just clarify, we are not factor based house. Okay. We don't
09:24look into any of the factors. The factor based thesis, we think is a bogus thesis, which
09:28has failed globally. Okay. And that's our factor based models are part of a very static
09:33style of money management and which has failed miserably. So we brought the concept of dynamic
09:40style of money management because we believe we live in a dynamic world where data points
09:44are changing on minute to minute basis. Okay. And in that background, your money management
09:49style cannot be static. That's one of the reasons why we have been relatively more successful
09:55because our practice of dynamic style management has generated superior risk-adjusted return
10:00on consistent basis. If you look at six months, one year, two years, three years, five years,
10:05you know, and this is like what we have done in last five years, our risk-adjusted returns
10:10across all categories where we operate, we are actually five by far, either we are in
10:15the top quartile or we are the leader in that category. So that's the way this organization
10:19has been built more from an analytic perspective. And we very proudly say we are in the business
10:25of risk management returns a by-product. So the way we manage risk is all about that,
10:30you know, so risk assessment and managing risk is very important. Otherwise, a lot of
10:35people end up in doing, Oh, that was a risk on period, you know, Oh, that was a risk of
10:39period after the event is doing, doing post-mortem analysis becomes very easy. So we bring the
10:45concept of predictive style of money management. We work on a predictive analytics where we
10:48try to connect the dots. And so we run complex multivariate model and we subscribe a lot
10:53of data. So when, when multiple data is skewed on one side, we do take aggressive call and
10:58when multiple data is not giving me any meaningful conclusion, we lie low. It's not necessary
11:03that you have to play on the front foot every time, depending on the environment, we have
11:08to change our strategies. It's like, you know, yeah, go ahead.
11:12Yeah. So what is that? And, and, okay. So thanks so, so much for the clarification,
11:16but what is the analysis point to right now? Because if you look at a commentary across
11:23the board, seemingly, it's getting harder for money managers to find value and to find
11:28opportunities to buy. I look at the construction of your portfolios and small, mid and large
11:35in the flexi cap. And there is the usage of the space that you have to buy large cap.
11:42There is, there are large holdings that you have in the large cap category. So is the
11:46interpretation that you're seeing less value in the broader markets and you're moving your
11:50assets accordingly? It's not the case actually. This sort of portfolio is there for last many
11:58months or maybe a few quarters. So it's not fair to say it has just happened in last month
12:04portfolio. That's the first point. Second thing, when you talk about global market,
12:08let me be very clear. Even from India perspective, we said that easy phase of bull run is over.
12:13We are in bull run. We are in decisive bull run, but we are in difficult phase of bull
12:17run. So obviously the strategy which was there in the easy phase of bull run has to be different.
12:23And if you are in the difficult phase of bull run, that's the first point. Second thing
12:26you have to look at, our worry for India is actually on the lower side because India risk
12:31appetite is still rising. And so is the case with some of the emerging market. Worry from
12:35the global market is right now, it's more on the developed market side and particularly
12:39on the US side where market obviously all time high and everything is doing very well.
12:44Economy is also doing very well. But the challenge is that we are seeing some amount of complacency.
12:49People are becoming slightly complacent. So we will look at our behavior analytics tools
12:54and we can say the compound complacency index for US has spiked significantly, which means
12:59the probability of vulnerability is on the higher side. With that background, if I look
13:04at multiple data points also, when we talk about cross asset, cross market thesis, then
13:10we realize that the employed was of various assets class in the early stages of inching up,
13:15which means the coming times can be more volatile as compared to what we have seen in last few
13:20months. So the global background is not going to be as conducive as it was in the past.
13:27However, India remain in a very unique situation. If I have to look at from India from a perception
13:32point of view or the perception analytics data, this clearly indicate that something has changed
13:36in India. So we say this decade belongs to India, maybe half century belongs to India.
13:42But what is very important to understand that no moves are going to be linear.
13:46What is very important, how you manage your money through sector rotation, stock rotation.
13:52And if you can manage your stock selection and sectors allocation properly and right allocation
13:57also, it's not like you identify great stock, but you bought only 0.25% of the portfolio.
14:02So it's not going to make even rounding error difference also. So what is about allocation?
14:06A lot of people get it right, but the allocations are wrong. So as a house of where we say quant,
14:12we quantify everything. I think this aspect is also important, how you construct and what
14:17weightages you give to this thing. So from that perspective, we are very constructive on India.
14:22We say it's one of the opportunity once retail investor should never going to miss it. This is
14:27lifetime opportunity which is there. And with that background, we believe that one should remain
14:32invested rather than withdrawing money. But everybody has to reassess their risk appetite
14:38from the current level, their investment horizon. If you have long term investment horizon of 5,
14:4210 years on a mid and small, de-remain invested and maybe add. But if your investment horizon is
14:47small, then you have to relook or in terms of your schemes allocations.
14:52Fair point. Sandeep, two questions with regard to management. And we have seen
14:56because of the analysis based selection of schemes, the way that you've described the
15:02portfolio selection, there is a high degree of churn. You use opportunities to sell and you're
15:08happy to churn. You're not stuck to a particular portfolio. Does that strategy and the strategy
15:14that you've employed so far become harder with the increase in the asset base? Because if you're
15:20talking about your small cap fund, you're now at what, 23,000 crore AUM. Can you utilize the same
15:26strategies that you used when you were much more nimble?
15:30Well, I'll address, these are two very important myths and I'm using the word, they are myths,
15:35nothing more than that. Somehow we have been taught in India, churn is bad. Churn means,
15:43high churn means no clarity of thoughts or confusion in your mind or no clarity. And
15:49generally it is linked with a negative connotation. Higher churn means not a great money manager.
15:54Okay. Now we are a student of adaptive asset allocator and allocations, which where we try
15:59to understand the prevailing global macro environment. And based on that, we will decide
16:05whether it's a risk on phase or risk off phase. And what is the intensity of risk on risk off?
16:09Let's say a very simple example. What food we can eat in Bombay? What food I can eat in Chandigarh
16:15and Relish? I can't eat that sort of food in Bombay. So it's depending on the weather,
16:21climate condition, region, your food habit and attire, it's linked with that. Something
16:26similarly we say in the market, based on the prevailing macro environment, you have to decide
16:31your strategies. That's the first point. Second thing is very important, that churn actually is
16:35a very good thing because if churn reduces my risk, okay, in a sophisticated language,
16:41in the portfolio management, we call it rebalancing. In a very crude manner, we teach
16:45the concept of churn. Okay. In global portfolio management, you will not get this term called
16:50churn. Like private equity rebalance their portfolio in 5 years and 10 years. Maybe some
16:56very traditional long accounts rebalance their portfolio on a yearly basis, that asset allocator
17:01on the year and decide what the next year's strategy will be. Hedge funds rebalance their
17:06portfolio on a quarterly basis and maybe trader rebalance their portfolio on a daily basis. Okay.
17:10What is very important for us to understand that rebalancing, since we live in a dynamic world and
17:16we practice dynamic style of money management, our rebalancing is also equally dynamic. Okay.
17:21And actually, this reduces risk. And that's the reason if you sit down and analyze our analytics
17:28over the data, then you realize our performance is good. Our performance is extraordinary. But
17:34what gives us satisfaction is that we are the best in terms of risk-adjusted return. If you look at
17:40last 5 years' data, our fact sheet or even any tools you pull it out, you realize our risk-adjusted
17:47return is across all the schemes, categories which we operate, we are actually the best,
17:53which clearly means that something right we do as a house and risk on risk of environment
18:00through reality framework really help us in capturing that. Fantastic. All right. Sandeep,
18:05thanks so much for taking the time. Pleasure speaking with you. Look forward to the next one.
18:10Thanks for calling us.