ICICI Prudential Quant Fund NFO – Review – A Blind Date?

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. Everything under the sun is here. 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.”

So there is no fixed model as such. It will keep changing over the period of time.

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. Update – See back testing data in image below from their explainer presentation.

ICICI Quant Fund Performance Back Tested

Model has performed far better than BSE 200. However be little cautious while coming to future conclusion. Whenever any mathematical model is created, it is tried out with various weightages, parameters and re calibrated.

If model is not performing as expected, it is tweaked with different value and with some trial and error you can always get some model which is performing better. It is always easy to do with past data. Same would continue in future is no guarantee.

Difference between Index and Model is too good to believe to be very honest. One observation from graph is model rises as well as falls faster than index. So expect strong volatility even if model works well in future.

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
  • Fund Manager focus will be on model tuning than stock selection

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

Other references about ICICI Quant Fund

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

Here is ICICI Quant Fund Presentation.

You may check out ICICI presentation video below for basic details.

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 I am not sure about the model.

Though I really need not know entire structuring of model (which could be proprietary to ICICI), I would at least need high level understanding.

Also I don’t give lot of weightage to back tested model performance as we can always create some good model when we know the past.

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 during review.

ICICI Fund house has this secrecy approach. Even in case of ICICI Balanced Advantage Fund, they have kept equity – debt allocation logic secrete. But it is one of top performing balanced advantage fund.

So if you are an investor who loves to go on blind date. If something unknown excites you, then you may consider this. It may surprise you. Good or Bad way – only time will tell.

That’s all with ICICI Prudential Quant Fund NFO Review. Happy reading and happy investing.

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