Please review of my MF portfolio

Yes, even me too. But only with small caps. I am willing to risk a small amount in small caps MF. But I don’t prefer MF’s that have fund managers that use fundamental analysis.

I would try Smart beta funds and quant funds that use mathematical quantitative analysis. It removes the human factor. However it’s completely uncharted territory for me as I have not done any research on that. These are the questions or factors I look at:-

  1. How much % of active MF particularly smart beta funds and quant funds have beaten nifty 50 index yearly?

  2. Historical data past 2 years i.e performance of their algorithm and methods or the performance of fund manager that uses these algo & quantitative methods?

  3. Which all smart beta funds and quant funds have consistently outperformed the nifty index over last 3 to 4 years?

@GB26 if you any idea or source share them

Algorithmic or some system funds don’t have much history, and whatever is available is not sufficient. If the history is only the last two and a half years, then you know that it has been a huge bull run, so not useful.

I don’t exactly know about quant funds from fund houses but strategy indices’ definitions are not accurate, they are arbitrary, so there is no clarity here unlike with a market cap index.

Also, from a fundamental stand point, I don’t think any fund manager would deploy an automated or systematic strategy for small cap stocks, for a few reasons. One reason is that the companies are small, the businesses could be niche, so even if a system gives a sell signal based on some parameters, selling a golden goose could turn out to be a costly mistake, as a small cap stock could become a multibagger in just a couple of years.

Another reason is that, the information available is very less, and there could be a few red flags per se, but given the size of the company, they are not considered as red flags but should be monitored things, so a manager uses his own experience, expertise and wisdom for both buy and sell calls, qualitative analysis comes into picture. So I would rather read about such small fund managers’ interviews, interpret and infer my own things, and then would go with them. I did in fact, read about them but did not invest in any small cap funds though, not needed for me.

There is the churn, if they keep on buying and selling based on their signals, the churn will be high, so could be the expense ratio.

Then there is impact cost for institutions, the impact cost will be high for small stocks, it is not easy to buy or sell small stocks.

So I am not sure, if algorithmic, quant, or any other systems alone can deliver good returns consistently in small caps.