Despite the underperformance, wealth management platform service provider Quantech Capital has most of its funding in this area.
Sujit Modi, Founder and CEO of Quantech Capital and curator of WealthBasket, said: Edited excerpt:
How will WealthBasket perform in 2022?
The Russia-Ukraine war, rising oil prices, interest rates and technology sales dominated the news headlines in 2022.
At OpenQ Defensive Momentum, we started the year with an overweight IT, which was clearly rejected by the market. At the beginning of the year, it was well below the benchmark. But our processes are dynamic, so we moved away from IT and gradually into consumer goods and industrial companies. This allowed him to recover any underperformance and allowed him to end the year closer to the benchmark. The 2022 return is 4% and his CAGR over the three years was 29%.
What are the key parameters/metrics you look for when selecting stocks for your portfolio?
We are a quantitative firm that focuses on systematic equity factors to design our portfolios. Price and earnings momentum are two such factors. Overlay it with low volatility to favor stocks that are rising with relatively low volatility. Also look at analyst coverage in the consensus view.
The start of the new year has not been good for the market. Given the volatility from persistent global risks, how should investors approach the market?
Volatility is always a part of stock investing. The only way volatility can be countered is through discipline. Keep investing, stick to the process, and follow the process. Based on data science and quantitative finance principles, OpenQ evaluates such a process over three business cycles before putting it into production.
Our process-driven approach helped us recover from the first half of the year and bring us closer to the Nifty 500.
Given the government’s planned PLI scheme and infrastructure enhancement, do you expect a capex-heavy budget this time around?
Never speculate about market events. Wait for events to unfold, understand their impact on the market, and ensure your quant processes are responsive to such changes.
In budget preparation, in which sector do you see the most action? What sector would you recommend getting into?
We don’t bet on budgets and other similar macro events, but looking at the current market structure, we are over-allocated to PSU banks and industries.
Which sectors/stocks appeal to you and would you like to add to your portfolio in 2023?
It becomes a dynamic process. We will reorganize our portfolio as new information becomes available. We value casting more than prediction. We are currently overweight mid- and small-cap stocks. As the year progresses and more data comes in, rotation occurs.
Retail inflows were strong in 2022, do you think the momentum will continue this year?
Despite last year’s FII redemptions and high volatility, the retail SIP is not only stable, but continues to grow monthly. Also, given that there is general consensus that this is his decade in India, inflows are likely to remain stable.
Fund rotations may occur if other asset classes become attractive, but they will be tactical in nature rather than strategic.
What asset allocation would you recommend to your clients in anticipation of a volatile market environment?
In investing, discipline is paramount. There are three ways to manage volatility: 1) diversify your investment over time (like SIP), 2) invest in negatively correlated assets (gold/debt/stocks, etc.), and 3) invest long enough. That completes the cycle.
What the above three methods do is prevent volatility from affecting the portfolio.
That said, diversification is a dynamic process and both the need for and methods of diversification should be assessed based on market regimes.
Which pockets of the mid and small cap segment look attractive to you and why?
Currently, more than 85% is allocated to small and medium caps, especially PSU banks, industrial manufacturing and some consumer stocks.
(Disclaimer: Professional recommendations, suggestions, views and opinions are their own and do not represent the views of The Economic Times)