ICICI Prudential Quant Fund NFO – Review – Needs lot of clarity

Let us do a quick review of new fund getting launched on 23rd Nov 2020 – ICICI Prudential Quant Fund NFO. Let us see if we should invest in this NFO. I am sure title of post is giving you enough hints as what my view is.

As usual, I will try to keep it short – to save your time.

Disclaimer : Needless to state that this review is my personal opinion and you should either consult your Investment Advisor or do your own research before taking any decision.

So What is a Quant Fund?

A quant fund is a fund that selects stocks using technique of mathematical and statistical modeling, calculation and research. In quant funds, fund managers build mathematical models using software programs to determine say stock selection in this case.

In simple term, investment will be based on some quantitative measurements of stocks and less by human judgement of Fund Manager.

What is Mathematical Model behind ICICI Prudential Quant Fund?

From above definition of Quant, you would agree that success or failure of a quant fund will depend on its mathematical model. So what model this fund is going to follow.

I could not see any effort made yet to explain the quant model they will use. All that is mentioned is model will be based on following parameters.

  • Price to Book
  • Price to Earnings
  • Return on Equity
  • Dividend yield
  • Earnings per share change
  • Interest Coverage Ratio
  • Analyst Ratings
  • Return on Invested Capital
  • Return on Assets

Now I don’t think any other parameter is left in stock selection. Any Equity fund or a fund manager would consider these parameters while stock selection.

AMC should have taken some effort in explaining how mathematically it is going to be different. That is missing. Furthermore they also added disclaimer to make matter worse – “This is not an exhaustive list and the fund manager may add or delete any factor(s) based on the review.”

Makes me feel that they do not have a mathematical model ready yet!

What is weightage of different parameters

When we are investing in a quant fund, we would like to know which are critical parameters for this model. Some parameters are generally more important than others. That gives us some insights. Like if a model has more weightage to “Price to Book ratio” then we can have some clue that it is a value oriented model. That helps us identify fund is suitable for which type of investor.

That is not case with ICICI Quant Fund. It will have equal weight to all the parameters to avoid any bias. Not really sure how it will work.

In absence of any detailed explanation, I am guessing model will give some points to each stock based on all parameters say price to book ratio, price to earnings, so and so forth. But you can imagine how difficult it is to visualize what combination would come out.

Back testing of quantitative model of ICICI Prudential Quant Fund

Generally quant funds give some details of how model performed in past 10 years or so. This data is missing for now. In absence of that we don’t really know historic performance of this model.

Though history may not always help us predict future, it is important especially in quant funds. Since stock selection is more on formula than judgement of fund manager, unless someone explains how it performed in past, how would we get confidence to invest money in it.

Hope ICICI fund house comes out with some presentation explaining this. Bare minimum, they should provide what portfolio they would have had last 12 months based on their model.

What we know about ICICI Prudential Quant Fund

Some information that is clearly known is as below

  • Typical equity allocation of 95 – 100 %
  • Fund will invest in stocks from BSE 200
  • Fund is not concentrated fund – 30 to 60 stocks will be in portfolio
  • Portfolio Rebalancing frequency is expected to be monthly in normal situation

Review Conclusion – Should you invest in ICICI Prudential Quant Fund NFO?

I won’t be investing in this fund at this time. I don’t want to put my hard earned money where fund house is least bothered to explain how they plan to invest.

Let me be very honest, this is one of most difficult NFO review for me. Absence of clarity around model is main reason. Model is key factor in a Quant fund and there are hardly any details available.

This is second quant fund I am reviewing (after Tata Quant Fund ). Though even that I had felt to give a pass that time, at least I had some understanding of that fund.

If ICICI fund house come up with some presentation later and I get details, may be I will update review here.

Investment Details of ICICI Prudential Quant Fund

There is nothing unique or different to investment details like minimum amounts, of this fund.

NFO Opens23-Nov-20
NFO Closes07-Dec-20
Scheme reopens for purchaseWithin 5 days from closure
Minimum investment (Lump sump)Rs 1,000
Minimum investment (SIP)Rs 100 for 6 months
Entry LoadNil
Exit Load1% if exited within 1 year
Max Total expense Ratio (TER)2.25%
BenchmarkS&P BSE 200 TRI
Fund ManagerMr. Roshan Chutkey
Basic Details of Scheme

Link to ICICI Prudential Quant Fund Scheme Information Document or SID for your own research.

That’s all with ICICI Prudential Quant Fund NFO Review. Glad its over.

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