2 weeks Ago
Quant Mutual Fund made headlines recently by exiting its entire stake in HDFC Bank. The fund house sold over 1.73 crore shares, valued at approximately ₹2,800 crore, according to data from IDBI Capital.
This move is significant and prompts questions about the underlying reasons and potential outcomes of such a decision. Reasons for the exit Quant Mutual Fund’s exit from HDFC Bank, its largest exit by value, appears to stem from HDFC Bank’s prolonged underperformance. Despite expectations that an increase in its weight in the MSCI index would attract global passive funds, MSCI's phased adjustment dampened these hopes.
Arihant Bardia, CIO and Founder of Valtrust, shed light on the broader context of portfolio churning. “Frequent churning can be seen as detrimental to a portfolio’s health. However, if managed actively, it can prevent a fund from merely mimicking benchmark indices.
In the case of HDFC Bank, the stock's underperformance led to this exit. The hope was for recovery following MSCI's adjustment, but the phased increase proved less effective," he told CNBC-TV18.com.
Bardia said that high turnover ratios are often justified in flexicap and small-cap funds where opportunities for stock picking are greater. For large-cap funds like Quant's, high churn is less common but can be strategic if it addresses underperformance and avoids diminishing returns. Girish Lathkar, Partner and Co-Founder of Upwisery Private Wealth, said, “A high churn ratio can reflect a fund manager’s tactical strategy.
While it may increase risk, it can also capitalise on short-term opportunities. The key is to evaluate the results of these tactical decisions. Such strategies are essential for achieving alpha or meeting specific objectives.
” Lathkar emphasises that while tactical moves can introduce risk, they do not necessarily increase fund expenses beyond regulatory limits. Thus, portfolio churning, when executed with a clear strategy, can be a positive approach rather than a sign of instability..
