Prabhudas Lilladher Quant Edge Aqua Fund

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Fund Overview

At PL, they are adamant that the development of investment ideas requires systematic procedures for alpha generation, strong risk management, and the eradication of cognitive biases. In light of this, they created Quantifi, a PL Group company that specializes exclusively in quantitative research and investment. For the past four years, the team, which consists of Python programmers, CAs, CFAs, economists, technical analysts, statisticians, and quantitative analysts, has developed quant-based multi-asset and equity investment strategies.

Aqua is an equity investment technique that adapts to changing market conditions in order to produce alpha. Dynamic style selection, dynamic theme selection, and a dynamic multifactor approach are the three main components of Aqua. Aqua uses quantitative techniques to combine fundamental and technical data to make wise investing decisions.

Because Aqua doesn’t have emotional biases and can digest a lot of data, it can adapt to many styles, themes, factors, and market regimes. Before making any investing decisions, it assesses all assets across sectors and market sizes using a variety of factors, including quality, growth, value, momentum, volatility, sentiment, theme, risk, technical risk-reward, and trends.

The Pillars Of The Aqua Strategy

  • Dynamic Multi-Factor Approach: According to the research, a multi-factor investment strategy outperforms a single-factor strategy across market cycles in more than 80% of instances.
  • Sector and Theme Rotation: According to the data, 72.5% of investment returns are driven by being in the correct industry and theme at the right time. Aqua thus emphasizes dynamic rotation of sectors and themes.
  • Adaptive Investment Style: The study also reveals that the choice of investing type, such as value, growth, quality, momentum, etc., affects 70% of investment results. To adapt its investment strategy to the current market environments and ensure alpha production across cycles, Aqua uses a rules-based quant process.

Unique Feature

Rules Based & Data Driven

A Logical rules based, rigorously tested, data-driven, objective approach, free from intuition, subjective judgement and emotion, drives sustainable out performance.

Smart Beta Approach for Resilience

This strategy aims to deliver superior risk-adjusted returns by capturing alpha in risk-on periods by increasing portfolio beta while mitigating risk in risk-off periods by reducing portfolio beta. 

Transparent, Systematic & Repeatable Process for Consistency

Our disciplined and transparent process, based on time-tested rules, ensures systematic entries and exits, leading to reliable and repeatable investment outcomes that enhance consistency and sustainability across market cycles.

Unbiased & Aligned to Market Realities

Using a Benchmark, sector, size, beta and style agnostic quant approach, our dynamic multifactor framework eliminates fund manager biases towards stocks, sectors, and styles, to stay aligned to the changing market realities.

Adaptive & Regime Responsive Strategy for Seamless experience

India’s first style agnostic strategy using principles of factor rotation, to dynamically adapt its style, sectors, size and stocks to align to the changing macros and markets regime. This relieves investors of the burden of constantly adjusting their strategy to the prevailing investment regimes.

Unconstrained Multi Dimensional Framework

Outperformance driven by dynamic regime-based allocation that enables strategy to be adaptive and unconstrained using a multi-style, multi-factor, multi-cap, and multitheme approach, as opposed to unidimensional approaches.

Balances Multiple Factors for a Holistic Perspective

Leveraging strategic synergies by Blending data analytics across fundamentals, technicals, valuations, risk, themes, styles, and macros, to maintain an edge in the investment process.

Alpha through themes

Our strategy leverages the power of proprietary themes to generate superior returns by allocating the portfolio to themes that are expected to outperform the broader markets.

Dynamically Diversified Flexicap Exposure

It reduces risk by dynamically tilting towards larger caps during risk-off periods and generates alpha by tilting towards smaller caps during risk-on periods, offering a diversified flexicap exposure across the most liquid large, mid and smallcaps.

Efficient market participation

Our strategy reduces impact costs by prudent stock selection that focuses on investing in highly liquid stocks coupled with employing tactical trade spreading.

Investment Strategy Objective

Systematic Alpha Generation intentional, not chance

6S Framework To Deliver Sustainable Investment Success

Sector Rotation

Sector selection enhances returns by 73%. By focusing on dynamic sector rotation, Aqua Invests in sectors & themes with improving or positive growth outlook and favorable sentiment.

Style Alignment

Style selection enhances returns by 69%. Aqua Dynamically Adapts the style of the portfolio to the prevailing and changing investment regimes driven by evolving market & macros conditions, in order to stay aligned to market realities while capturing alpha and managing risks.

Superior Fundamentals

Uses relative comparison based on 50 + fundamental metrics to identify stocks doing better vs their past, and among their peer-set on a continuous basis. Scores based on capital efficiency, operating efficiency, competitive positioning, financial health, capital structure, capital allocation, Cashflows, business quality, and holistic growth trajectory, in order to identify stocks with improving or robust fundamentals.

Sound Valuations

Uses 360-degree valuation Analytics, by evaluating a security against its historic valuations, its industry peers and the broader markets, to identify stocks with favorable risk-reward and margin of safety.

Strong Technical

Leverages technical analysis by capturing trend, momentum, volatility and sentiment, to augment returns and manage risk.

Smart Risk Management

Timely rebalancing, dynamic asset allocation, smart beta management, while investing only in liquid stocks with superior fundamentals.

Proprietary Factors

  • Quality: Provides Superior risk adjusted returns during non-trending markets and uncertain economic outlook. Evaluates fundamental characteristics of a business vs its history and industry peers.
  • Value: Generates alpha during macro and monetary regime shifts. Evaluates fundamental valuation attractiveness of a security vs history, industry peers, relative premium/discount to index, and broader markets.
  • Growth: Generates alpha during phases of economic expansion by participating in stocks with a robust growth trajectory. Evaluates Internal growth of a business vs its industry peers, its own history, and broader markets.
  • Momentum: Enhances portfolio returns during phases of expanding liquidity leading to broad based bull markets. Assess absolute and relative momentum, along with risk adjusted return metrics versus all companies across long-medium- and short-term time periods.
  • Theme: Helps position the portfolio in right themes and sectors likely to outperform. Stocks that are part of themes with improving or positive growth outlook, positive market interest and favorable risk reward
  • Style: Dynamically Tilts the portfolio towards the prevailing investment regimes which change across cycles. Assigns style ranks to securities where the dominant factors are play are in line with the prevailing investment regime across quality, value, growth, momentum, low volume
  • Technical & Sentiment: Enables security level and portfolio level risk management based on technical risk reward and sentiment for all securities. Uses trend following, mean reversion and demand-supply dynamics to evaluate technical risk reward and sentiment for securities
  • Dividend: To ensure portfolio includes companies where dividend yield to insulate returns in challenging times. Evaluates dividend yield, pay-out ratio, free cashflows among other criteria to evaluate dividend potential and track record of stocks
  • Liquidity: Ensures that the portfolio holds liquid and adequately traded securities that enable reducing slippage, impact cost and other transaction costs. Evaluates free float market cap, turnover, trading activity, traded volume, delivery data to assign a liquidity score to each security
  • Size: Enables portfolio to adapt across market cycles by going underweight and overweight larger caps vs smaller caps. Evaluates market cap and changes there in to classify stocks into large, mid and small caps.
  • Consistency: Ensures lower volatility in the portfolio versus broader markets during periods of increased market volatility. Evaluates a consistency in a security’s returns across discrete long term time periods. 

SMART Investment Philosophy

In the world of smartphones, smart TVs, smart cars and smart homes, we bring to you smart investment strategies.

  • Systematic Design: Using a rules-based approach to eliminate emotional & behavioral biases
  • Measurable Performance: Tested rigorously across market cycles for sustainability
  • Adaptive Models: That dynamically respond to changes across multiple dimensions
  • Repeatable Alpha: Driven by unconstrained and objective processes
  • Transparent Attribution: Using data-driven multi-factor frameworks to enhance reliability

Investment Process - Elimination, Identification & Integration

  • Eliminate & Filter: Out of Top 500 stocks by market cap, 100 stocks are eliminated based on liquidity and another 100 based on fundamentals, leaving us with 300 stocks across large, mid and small cap. 
  • Sector Evaluation: Generate Ranks for all themes & sectors and Provide sector rating to each stock
  • Style Mapping: Identify the prevailing Style Regime & Assign style ratings to each stock
  • Stock Rating: Assign a Fundamental, Valuation, Sector, Style & Technical Rating to each stock
  • Portfolio Construction: Highest dynamic Multifactor score after Aligning portfolio to prevailing investment regime by incorporating style and sector tilts
  • Risk Management: Dynamic Asset Allocation, Sector Rotation & Style Alignment along with Smart Beta Management

PL Try To Get It Right By Integrating

  • Right Asset: Drives performance by 91%. Right asset at right time > holding an asset at all times
  • Right Time: Enhances alpha generation & risk management. Timely, systematic and objective review and rebalance > buy & hold driven by biases
  • Right Style: Enhances performance by 69%. As per changing regimes > preferred or favorite style in all regimes
  • Right Theme: Enhances performance by 73%. Wrong stock in right theme > right stock in wrong theme
  • Right Factors: Enhances performance by 80%. Blending multiple factors > choosing single factor.

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Disclaimer: Investing Involves Risk. This document is for information purposes only and should not be viewed as a legal offering document or solicitation. Offers to invest in this fund are made only by the Discretionary Portfolio Management Services Agreement. Past performance does not guarantee future results and there is no assurance that the managed accounts will necessarily achieve their objectives. We do not guarantee any returns in the hand of investors not we take any sort of accountability for the performance of the scheme. The above-mentioned data is collected from the respected Fund house please verify the same at SEBI website.