Quantum Long Term Equity Value Fund, where value investing is the pronounced fund allocation theme, has brought down the level of cash at its plan to the lowest in 31 months after a liquidity crisis at para banks caused stocks to slide since early October and presented opportunities to buy scrips cheaper.
Cash levels fell to 5.8%, the lowest since June 2016, at the fund that follows well-defined buy and sell limits. When portfolioconstituents hit specific thresholds, the fund sells out the companies and accumulates cash.
It has the option to hold cash as high as 35% in its portfolio. As valuations soared, the fund increased cash to 20.48% in July 2018. However, after the third-quarter correction in the broader markets, the manager began progressively buying equities, lightening the cash portion in the portfolio.
“We follow a bottoms-up approach to investing. Many stocks where valuations were high now seem to be within reach,” said Atul Kumar, head (equity Funds), Quantum Mutual Fund. “We were able to add good quality stocks using the recent opportunity. The scheme cash level is now in low-single digits, offering decent potential returns.”
In the recent correction, the fund manager used cash in the portfolio to build positions in Shriram Transport, Ambuja Cement, Yes Bank and Mahindra and Mahindra.
In May 2014, immediately after the elections when the markets ran up sharply, the fund’s cash levels increased to 32.4% and it held on to cash levels of 30% until April 2015.
As per data from Value Research, the fund has been one of the best performers in the Value category over the past year, losing 0.6%, while the category lost 9.71%. Over a three-year period, the fund gained 12.91%, compared with the category average of 12.25%. Generally, equity oriented funds do not hold cash beyond the mandatory 5-8% to meet redemption requests or to add a few select stocks. Wealth managers believe such funds could disappoint investors in the short term as returns are rather volatile.
“When there is no investible opportunity due to high valuations, cash is king. The value strategy followed by the fund has played out well for investors over the long term,” said Rupesh Bhansali, head (Distribution), GEPL Capital.