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  • March 15, 2017
    Nilesh Shetty - Associate Fund Manager - Equity

    In the month of February 2017, BSE Sensex gained 4.01% on total return basis. In the first two months of the year, it has appreciated by 8.05%. Mid cap and small cap indices also rose handsomely by 5.53% and 5.92% respectively during the month. Among sectors, real estate, consumer durables and IT were among the best performers, some rising on the base of low expectations. Auto, metal and power were major indices which didn’t enjoy much favour with investors.

    On a one year basis, Sensex has risen 26.9% on total return basis. FIIs invested USD 1.56 Bn in Indian stocks during February. Domestic institutions put a small USD 98 Mn to buying equities. Major part of this came from insurers whereas mutual funds sold stock worth USD 8 Mn. Indian rupee appreciated 1.73% against US dollar during the month.

    Global Scenario

    On the global front, US plans to invest on replacing its legacy infrastructure. Many commodity prices, especially metals have run up fueled by such expectations. Other developed markets such as Europe and Japan have been struggling for growth. China, which was a major contributor to growth few years ago, has been facing problems with over-leverage of debt. China has invested heavily in factories and infrastructure to keep demand and employment high.

    RBI held its monetary policy during the month. In a surprise move, it changed its stance from accommodative (rate cuts possible in further) to neutral. While overall inflation has come down to 3.2%, non food inflation remains sticky. This has been a concern for the central bank. Interest rates may not fall much in the coming future in India. There has also been a rise in interest rates in US, which prevents Indian rates to come down given risk premium an investor expects.

    US interest rates may go up further in future as the economy has achieved low unemployment and is operating close to optimal output. This may hurt equities prices in emerging markets including India (at least in short run).

    Most companies are seeing good demand and demonetization worries are receding. Consumer facing firms expect that there can be some impact till quarter ending March 2017 and not much beyond that. This bodes well for Indian equities as earning growth may return after the system shock witnessed in November 2016. However, the unorganized sector in India may undergo pain for longer as they have not disclosed their full income historically. Their pain can have spill-over effect on some other industries, eg banking.

    Outlook

    We remain optimistic about Indian equities in the long run. India is unlikely to be impacted much economically from the unfavourable situation in other parts of the globe. Across the globe prices of commodities and energy have been falling, it has been a beneficiary for India. India is a bright spot in world equities, given high GDP growth which can continue. Demonetization so far doesn’t seem to have a big impact on listed companies, though it needs to be watched in the coming months. India is also relatively less impacted from global protectionist measures as consumption is 65% of GDP. We are less reliant on exports for economic growth. Investors can add to their position in equity to benefit from higher corporate earning growth. Valuation of equities also appears to be fair, not excessive.

    Data Source: Bloomberg


    Disclaimer, Statutory Details & Risk Factors:

    The views expressed here in this article are for general information and reading purpose only and do not constitute any guidelines and recommendations on any course of action to be followed by the reader. The views are not meant to serve as a professional guide / investment advice / intended to be an offer or solicitation for the purchase or sale of any financial product or instrument or mutual fund units for the reader. The article has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Whilst no action has been solicited based upon the information provided herein, due care has been taken to ensure that the facts are accurate and views given are fair and reasonable as on date. Readers of this article should rely on information/data arising out of their own investigations and advised to seek independent professional advice and arrive at an informed decision before making any investments.

    Mutual fund investments are subject to market risks read all scheme related documents carefully.

    Please visit – www.QuantumMF.com to read scheme specific risk factors. Investors in the Scheme(s) are not being offered a guaranteed or assured rate of return and there can be no assurance that the schemes objective will be achieved and the NAV of the scheme(s) may go up and down depending upon the factors and forces affecting securities market. Investment in mutual fund units involves investment risk such as trading volumes, settlement risk, liquidity risk, default risk including possible loss of capital. Past performance of the sponsor / AMC / Mutual Fund does not indicate the future performance of the Scheme(s). Statutory Details: Quantum Mutual Fund (the Fund) has been constituted as a Trust under the Indian Trusts Act, 1882. Sponsor: Quantum Advisors Private Limited. (liability of Sponsor limited to Rs. 1,00,000/-) Trustee: Quantum Trustee Company Private Limited. Investment Manager: Quantum Asset Management Company Private Limited. The Sponsor, Trustee and Investment Manager are incorporated under the Companies Act, 1956.

  • March 15, 2017
    Pankaj Pathak - Fund Manager - Fixed Income

    Indian bond markets ended the month on an extremely bearish note. The 10 year government bond yields sold off by almost 50 bps (0.5%) to end the month trading at just below 6.9%. The selling pressure was triggered post the RBI monetary policy. The Monetary Policy Committee (MPC) of the RBI voted unanimously to keep the Repo rate unchanged at 6.25%. This was the third meeting of the newly constituted MPC and the third 6-0 vote by its members.

    We had expected RBI to cut the Repo rate by 25 bps to 6.0%, based on our view that inflation will remain well below the RBI’s immediate threshold of 5.0%. The budget was not populist and non-inflationary and that, GDP growth will be lower than estimated.

    We were wrong. Not on the Inflation and GDP projection. But on the assessment of it by the MPC.Not only did the MPC keep rates unchanged but it has also changed the stance of the monetary policy from accommodative to neutral

    This technically means they do not see scope for any immediate rate cuts and even if they do, the bar for that rate cut is set very high.

    This change in stance from accommodative to neutral and the commitment to secure the 4.0% inflation target suggests to us that we might have actually reached the end of the current rate cutting cycle. The RBI, in this cycle has cut the Repo Rate by 175 bps (1.75%) from 8.0% to 6.25%.

    The rate pause and the stance change has also sent a strong signal to the bond market on the market yield expectations. We do not expect bond yields to fall and the sell-off seen post the policy announcement is indicative of the fact that the best times in the bond markets are potentially behind us.

    It has been a significant run in the bond markets since August 2013 with bond funds and gilt funds returning double digits. Bond yields also fell from near 9.0% to as low as 6.0%, thus resulting in huge capital gains in bonds and thus increase in bond fund NAVs.

    But investors would do well now to lower their return expectations from bond funds. Capital gains may no longer be the driver of Indian bond returns. Also, if the RBI worries on global inflation emerges anytime in the near future, the bond market outlook will move to rate hikes instead of rate cuts further depressing returns from bond funds.

    The Quantum Dynamic bond fund posted negative returns in February. Post the budget announcement, wherein the government chose fiscal prudence over growth, we increased the fund duration as we expected RBI to respond favorably by cutting interest rates. This strategy was against what we had done in December and January, where post the large demonetization led bond rally, we reduced the duration and maintained sizeable cash levels. The recent increase in yields (fall in bond prices) did impact fund performance quite sharply.

    Outlook

    Going forward, we expect to maintain a conservative portfolio stance with adequate cash positions to take advantage of any exaggerated sell-off. At 7.0%, the 10 year bond yield would be trading at 75 bps spread over the current Repo rate of 6.25%. This should attract investors, if not for capital gains, but atleast for carry. We are seeing foreign investors buying Indian debt after some months of net outflows.

    We remain watchful for emerging global risks, especially oil prices and US interest rates and will caution investors that the next few months/ quarters could provide volatility to the bond fund returns.

    Data Source: Bloomberg, RBI, Indiabudget.nic.in


    Disclaimer, Statutory Details & Risk Factors:

    The views expressed here in this article are for general information and reading purpose only and do not constitute any guidelines and recommendations on any course of action to be followed by the reader. Quantum AMC / Quantum Mutual Fund is not guaranteeing / offering / communicating any indicative yield on investments made in the scheme(s). The views are not meant to serve as a professional guide / investment advice / intended to be an offer or solicitation for the purchase or sale of any financial product or instrument or mutual fund units for the reader. The article has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Whilst no action has been solicited based upon the information provided herein, due care has been taken to ensure that the facts are accurate and views given are fair and reasonable as on date. Readers of this article should rely on information/data arising out of their own investigations and advised to seek independent professional advice and arrive at an informed decision before making any investments.

    Mutual fund investments are subject to market risks read all scheme related documents carefully.

    Please visit – www.QuantumMF.com to read scheme specific risk factors. Investors in the Scheme(s) are not being offered a guaranteed or assured rate of return and there can be no assurance that the schemes objective will be achieved and the NAV of the scheme(s) may go up and down depending upon the factors and forces affecting securities market. Investment in mutual fund units involves investment risk such as trading volumes, settlement risk, liquidity risk, default risk including possible loss of capital. Past performance of the sponsor / AMC / Mutual Fund does not indicate the future performance of the Scheme(s). Statutory Details: Quantum Mutual Fund (the Fund) has been constituted as a Trust under the Indian Trusts Act, 1882. Sponsor: Quantum Advisors Private Limited. (liability of Sponsor limited to Rs. 1,00,000/-) Trustee: Quantum Trustee Company Private Limited. Investment Manager: Quantum Asset Management Company Private Limited. The Sponsor, Trustee and Investment Manager are incorporated under the Companies Act, 1956.

  • March 15, 2017
    Chirag Mehta - Senior Fund Manager - Alternative Investments

    World View
    Last month, we saw Dow Jones Index climb to a new high above 21,000 and gold was surprisingly resilient. This goes a long way to suggest the magnitude of risk and uncertainty in the global arena. Trump’s policies are likely to be reflationary in nature, but with it there will likely be surging inflation and high ambiguity relating to trade and currency measures leading to conflicting international relations. At the other end of the spectrum, there is rising anxiety over anti-establishment candidates in this year’s elections in Netherlands, France and Germany who favor exiting the European Union. All this uncertainty resulted in a positive environment for gold prices resulting in gains of +3.1% for the month taking the YTD gains to +8.3%. However, the lingering threat of rate hikes and further reflationary policies question the sustainability of the rally at least in the short term.

    Apart from fear trade, what really helped gold were rising inflation expectations amidst stagnant nominal rates resulting in lower real rates. However, at the end of the month there was a sudden re-pricing in rate hike expectations following Trump’s speech and the hawkish propaganda from several Fed members. The market expectations for a March rate hike jumped to 82 percent up from 50 percent before Trump’s speech. This was a sudden reversal from earlier in the month when markets saw just 34 percent probability despite hawkish remarks from Fed chair Ms. Janet Yellen.

    The high uncertainty surrounding EU Politics has been supportive for gold. Investors have been unsettled by political developments in Europe where far right candidate Marine Le Pen continues to gain support in France's upcoming Presidential elections and Germany's ruling coalition fell to second place in opinion survey for the first time in several years. This is having a profound impact on investors who have significantly increased gold purchases in Europe over the last few months.

    Outlook

    Trump said a “phenomenal” plan to overhaul business taxes may be released within the next two or three weeks, without giving details. The speech was high on rhetoric and low on detail. The new Trump administration comes with a high degree of uncertainty and its policy initiatives appear to be focused on stimulating growth and, with it, inflation. Gold seems to be portraying a healthy skepticism of whether the massive programs announced by the administration can be paid for without ballooning US debt.

    In the short term though, gold remains vulnerable to the downside as Fed monetary tightening gains pace. There is a camp of investors who expect three rate hikes this year. Three hikes this year is not a core view. It is likely that Fed hikes in March or June and then a 50% chance of another hike before the end of the year. Even minutes from Fed’s last meeting showed tension between participants gung-ho on rate hike citing economic buoyancy versus those who want more clarity and have concerns about downside risks.

    Treasury Secretary Mr. Steven Mnuchin commented on his expectations of low borrowing costs to persist. The possibility of aggressive rate hikes would only be possible if inflation increases significantly. If inflation expectations continue rising and potentially get out of hand, this would again leave Fed behind the curve. In all cases, there is a high probability that inflation remains ahead of policy tightening, negative real rates would be bullish for gold.

    We believe that the fundamental outlook for the gold market may not be so encouraging until people expect Trumps reflationary forces to mend the economy. But, as markets lose their faith in the pro-growth policies of Trump or if there is financial turmoil given further stretched equity valuations; it will force the Fed to adopt a more dovish stance and gold should start moving northwards. What could push golds ascent faster would be aggressive Trump policies that cause turmoil in currency and asset markets and this uncertainty would drive people to assets like gold.

    Geopolitical risk prospects have escalated this year due to the unconventional and protectionist policies that Trump’s administration may undertake, combined with uncertainty surrounding Brexit and rise of populist politics in Europe, all these would be supportive for gold this year and limit any downsides we see in the near term.

    The world is in great disequilibrium, both with respect to the global economy and geopolitics as well. There exist more uncertainties than certainties in the global macroeconomic environment of which Trump’s presidency is a big unknown. We believe that barring the near term, gold prices should start moving gradually upwards in 2017.

    Source: The World Gold Council, Bloomberg


    Disclaimer, Statutory Details & Risk Factors:

    The views expressed here in this article are for general information and reading purpose only and do not constitute any guidelines and recommendations on any course of action to be followed by the reader. The views are not meant to serve as a professional guide / investment advice / intended to be an offer or solicitation for the purchase or sale of any financial product or instrument or mutual fund units for the reader. The article has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Whilst no action has been solicited based upon the information provided herein, due care has been taken to ensure that the facts are accurate and views given are fair and reasonable as on date. Readers of this article should rely on information/data arising out of their own investigations and advised to seek independent professional advice and arrive at an informed decision before making any investments.

    Mutual fund investments are subject to market risks read all scheme related documents carefully.

    Please visit – www.QuantumMF.com to read scheme specific risk factors. Investors in the Scheme(s) are not being offered a guaranteed or assured rate of return and there can be no assurance that the schemes objective will be achieved and the NAV of the scheme(s) may go up and down depending upon the factors and forces affecting securities market. Investment in mutual fund units involves investment risk such as trading volumes, settlement risk, liquidity risk, default risk including possible loss of capital. Past performance of the sponsor / AMC / Mutual Fund does not indicate the future performance of the Scheme(s). Statutory Details: Quantum Mutual Fund (the Fund) has been constituted as a Trust under the Indian Trusts Act, 1882. Sponsor: Quantum Advisors Private Limited. (liability of Sponsor limited to Rs. 1,00,000/-) Trustee: Quantum Trustee Company Private Limited. Investment Manager: Quantum Asset Management Company Private Limited. The Sponsor, Trustee and Investment Manager are incorporated under the Companies Act, 1956.

  • 16th March, 2017
    Dear Investor,

    In the month of February we made two major announcements - our roadmap for reducing Expense Ratios and the introduction of Regular Plans for all our funds. it is the latter annoucement that has gathered some attention, which I would like to expand upon.

    Why Regular Plans?

    Our stance, as we have always said in the past in multiple interviews, is that we were NEVER against distributors. What we have been fighting for, since 2006, is the fact that all costs that an investor has to bear are disclosed to him, except the fees that fund houses pay distributors. Due to this lack of transparency, investors were unable to decide, or question whether the hard bargain that the distributor is driving to switch funds is genuinely for the better of the portfolio or the distributor's pocket. We were and are very happy to work with those distributors who keep the best interests of their clients at the forefront rather than their commissions. 300+ such distributors are working with us despite us not paying them a single rupee in commissions.

    The fight for greater transparency received a massive boost due to a rule change in March, with a final update in September 2016 with SEBI announcing that fund houses have to disclose the commission paid to distributors in their Common Account Statement (CAS). With this rule change, we believe that the transparency that we have been championing has come to fruition; therefore as a result of this transparency coming into the system we have decided to launch Regular Plans.

    We recognize the fact that mutual funds in India are underpenetrated and that a transparent distribution system can surely help bring more people into the fold of utilizing their savings in the right manner. Such distributors need to receive some sort of fees as compensation for what they spend in order to spread the good word, hence the introduction of Regular Plans.

    There will be no change in the way we manage your savings. No change whatsoever in our investment philosophy or our focus on doing what's best for you or our emphasis on complete transparency at all times. The Direct Plans you have invested in will continue as is.

    Is our focus going to be on gathering more AUM?

    This is something that Quantum will never do. Our first and only focus is doing what is right for our investors; growth will automatically happen when investors realize that a Quantum fund should form part of their portfolio.

    Let's look at the commission structure we are planning to offer for the Quantum Long Term Equity Fund (QLTEF):

    ExpensesUpfront CommissionTrail Commission
    Year 1 Year 2 Year 3 Year 4 onwards
    Total Commission Paid00.15%0.20%0.25%0.15%
    Borne by      
     - Regular Plan Investors00.15%0.15%0.15%0.15%
     - Quantum AMC00.00%0.05%0.10%0.00%

    Commissions stated are excluding service tax and any other statutory levies, which will be borne by investors of the Regular Plan and Quantum AMC as per the table above For Regular Plan investors, any payouts above 0.15% will be borne by Quantum AMC.

    Speaking of the Quantum Long Term Equity Fund (QLTEF), our flagship product, the expense ratio of that fund is 1.25% in the Direct Plan and is all inclusive, including statutory taxes (1.09% net of taxes). The commission we are going to pay are 15 bps, 20 bps, 25 bps and 15 bps from the fourth year onwards.

    This effectively means that our Regular Plan expense ratio (Year 1) would be in the range of 1.40% to 1.43% or 1.24% net of tax. Even if we were to include taxes as per the current rate, a 1.43% expense ratio for a Regular Plan is even lower than the expense ratio of Direct Plans of a few peers.

    Our aim is not to earn higher AUM but to offer fair reimbursement to distributors for their efforts. We have never been and will never be in a mad scramble for more AuM. We want the investor to buy our product only after understanding whether the product meets the investor's investment objective, risk appetite, etc. We don't want to force any product onto our investors. Thus the commission to the distributor will not be to induce him to push our product but it will be to compensate him for the efforts he has made and for mobilising the money.

    So to summarize, I would like to reiterate that:

    We have not changed our stance on working with distributors. The change in SEBI regulations, bringing in more transparency that we were fighting for, has allowed us to start Regular Plans.
    Our commission structures are one of the lowest and are recognition of the effort that the distributor has to put in while servicing you.
    You can still invest in Quantum Mutual Fund via the Direct Plan - there is absolutely no change in that respect at all, in fact as per our roadmap, the expense ratios will only go lower.
    As we grow - irrespective of whether money flows in via the new Regular Plan or the old Direct Plan - our costs will reduce and you will benefit thanks to more of your money getting invested as a result of that lower cost.
    There is no change whatsoever in the investment processes of the Funds: our team-based - no star fund manager approach backed by disciplined research will continue as it always has.

    Product Label

    Name of the SchemeThis product is suitable for investors who are seeking*Riskometer

    Investors understand that their principal will be at Moderately High Risk
    Quantum Long Term Equity Fund
    (An open-ended equity scheme)
    • Long term capital appreciation and current income

    • Investments in equity and equity related securities of companies in S&P BSE 200 index


    * Investors should consult their financial advisers if in doubt about whether the product is suitable for them.


    Disclaimer, Statutory Details & Risk Factors:

    The views expressed here in this article are for general information and reading purpose only and do not constitute any guidelines and recommendations on any course of action to be followed by the reader. The views are not meant to serve as a professional guide / investment advice / intended to be an offer or solicitation for the purchase or sale of any financial product or instrument or mutual fund units for the reader. The article has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Whilst no action has been solicited based upon the information provided herein, due care has been taken to ensure that the facts are accurate and views given are fair and reasonable as on date. Readers of this article should rely on information/data arising out of their own investigations and advised to seek independent professional advice and arrive at an informed decision before making any investments.

    Mutual fund investments are subject to market risks read all scheme related documents carefully.

    Please visit – www.QuantumMF.com to read scheme specific risk factors. Investors in the Scheme(s) are not being offered a guaranteed or assured rate of return and there can be no assurance that the schemes objective will be achieved and the NAV of the scheme(s) may go up and down depending upon the factors and forces affecting securities market. Investment in mutual fund units involves investment risk such as trading volumes, settlement risk, liquidity risk, default risk including possible loss of capital. Past performance of the sponsor / AMC / Mutual Fund does not indicate the future performance of the Scheme(s). Statutory Details: Quantum Mutual Fund (the Fund) has been constituted as a Trust under the Indian Trusts Act, 1882. Sponsor: Quantum Advisors Private Limited. (liability of Sponsor limited to Rs. 1,00,000/-) Trustee: Quantum Trustee Company Private Limited. Investment Manager: Quantum Asset Management Company Private Limited. The Sponsor, Trustee and Investment Manager are incorporated under the Companies Act, 1956.

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