Mutual Fund managers share highs and lows of trading during volatile market
In this section, we feature fund managers who have managed to ride
through good and bad market conditions with their right calls and timely
decision making.
A fund manager is like a Formula One driver, who takes his racing team through a turning, twisting race track, taking the right calls on when to step on the gas, when to go for the pit stop, and how to steer clear of collisions and clutters.
Like Formula One, managing a mutual fund is not a one-race affair. You have to perform race after race and season after season to be called a true champion. Michael Schumacher and Ayrton Senna were not one-race or one-season wonders. They finished on the podium on several occasions.
In this section, we feature fund managers who have managed to ride through good and bad market conditions with their right calls and timely decision making by adopting a combination of aggressive and defensive strategies to emerge as frontrunners over several seasons.
Their consistency and longevity in terms of the performance of the schemes they managed helped investors emerge victorious in the game of investment and ensured them a place in our list of winning fund managers.
"CONSUMPTION, INVESTMENT THEMES WILL DRIVE THE ECONOMY IN THE MEDIUM TERM"
Anand Radhakrishnan,
Senior Vice-president and portfolio manager (Equity), Franklin Templeton Investments
Investment strategy of the fund: Growth stocks form a large component of the portfolio. The fund has tried to capitalise on emerging opportunities in value stocks and cyclicals.
Calls that worked: Over the last one year (ended April 2011), the Bharti Airtel holding has been one of the key contributors to the fund's performance.
Calls that did not work: Some holdings in the material and industrial sectors-Sterlite Industries and Bhel-have underperformed. This is in line with the broad underperformance of these sectors amidst concerns about macro headwinds and their impact on the pace of investment activity.
Stocks he would grab: We seek to invest in companies that are wellmanaged; generate high return on capital and demonstrate the ability to deliver sustainable growth.
Stocks he would avoid: We would avoid momentum stocks (characterised by high volatility, valuation and governance risks). We remain cautious on the real estate sector due to the lack of transparency and absence of compelling valuations.
Advice to investors: We are positive on the consumption and investment themes, which are likely to remain the main drivers of the Indian economy over the medium term.
Personal investment strategy: I avoid short term performance comparisons - history is replete with examples highlighting the pitfalls of this approach. Invest in line with financial goals and risk appetite.
"WE WOULD LIKE TO BUY AND HOLD BUSINESSES THAT ARE WELL-POSITIONED TO DRIVE GROWTH"
Kenneth Andrade,
Chief Investment Officer, IDFC Mutual Fund
Investment strategy of the fund: It is a growth-oriented fund that looks for companies with business models that are growing faster than the listed environment. The tag line for the fund is that it is an unrestricted-go-anywhere equity fund.
Calls that worked: Polarised entire portfolio into consumer part of the economy, without taking any exposure to the infrastructure or capital goods sectors
Calls that did not work: The information technology sector was one of the better performing sectors in the last one year and we did not participate in the same considering our exposure was limited.
Stocks he would grab: Monopolies in a capitalist environment. These businesses come with all the pricing power in their industry.
Stocks he would avoid: Stocks of companies that build their businesses based on availability of funds through capital dilution. We dislike management that have poor financial discipline or excessive debt.
Advice to investors: On the equity side over the next two years concentration of portfolios will have their reward. On the other hand, fixed income is close to doubledigit yield. I don't believe in an environment such as this, equities could be very rewarding.
Personal investment strategy: I like the buy-and-hold strategy. Conviction in the portfolio is best defined by this metric. However, the underlying businesses should be robust enough to undertake any cyclical downturn.
"WE ARE COMFORTABLE WITH SECTORS WHERE WE ARE SURE OF THE QUALITY OF BUSINESS"
Sankaran Naren,
Chief Investment Officer, Equity, ICICI Prudential Mutual Fund*
Investment strategy followed: The fund has the mandate of active cash management which helps it effectively capitalise on volatility. Since it is a flexi-cap fund, it balances between large caps and mid caps based on adequate divergence in valuation.
Strategy that created alpha: Dynamic Plan has generated alpha historically using three methods-calibrating cash levels in the portfolio using a model that tracks price-to-book-value of the benchmark index; small and mid-cap allocation and sector weightage is based on a risk-return trade-off.
Calls that worked: The fund was underweight in the banking sector in the last quarter of 2010. This helped the portfolio when the banking sector corrected thereafter.
Calls that did not work: Being relatively underweight on the FMCG sector.
Stocks he would grab: Fundamentals are the prime reason for investing in the stock. However, factors such as ownership, beta of stock and investor psychology are kept in mind for contra participation. We would, therefore, invest in stocks or sectors which have attractive valuation. We are comfortable with sectors where we are sure of the quality of the business and the management.
Stocks he would avoid: We would avoid investing in sectors or stocks that are overly priced even if the stock or the sector is good fundamentally.
*Sankaran Naren managed the fund till January 2011. Sanjay Parekh currently manages the fund
"NEW INVESTORS SHOULD GO FOR DIVERSIFIED EQUITY FUNDS, AVOID THEME FUNDS"
Soumendra Nath Lahiri,
Chief Investment Officer, Canara Robeco Mutual Fund
Personal investment strategy: I tend to buy stocks directly. Having said that, the systematic investment plan (SIP) route for funds has worked best during volatile times. I tend to see stability in fund management and consistency. I would rather take a few percentage points lower return than tackle enhanced volatility.
Advice to investors: First time entrants should invest in a diversified equity fund with a large-cap bias, thematic funds should come in one's portfolio much later. With the high interest rate scenario and high inflation, we could be running into a lot of headwinds.
CANARA INFRASTRUCTURE FUND
Investment strategy followed: The fund has a large cap bias and it tends to have a combination of growth and value stocks. The infrastructure fund is a theme-based fund hence it has to restrict itself to sectors covered under it.
Calls that worked: Being overweight on cement has worked for the fund since it has done relatively better than other stocks in the infrastructure space in the last one year. Avoiding real estate and construction companies has also worked for the fund.
Calls that did not work: Stocks such as ABC Infra Logistics have been a drag and so have utility companies such as Gujrat Power, which has increased capacity but not running up to expected capacity utilisation levels.
Stocks he would grab: We might add stocks in the power equipment space since they offer good visibility in earnings, with companies executing more orders considering this is the last year of the current five year plan. We are looking at the telecom space with stocks such as Bharti since the worst seems to be behind them, although it is a contrarian call. The competitive intensity has slightly tapered off and the regulations now allow companies to explore mergers and acquisitions.
Stocks he would avoid: Realty and construction sector. Most real estate companies are over leveraged with no headroom to grow without taking incremental debt. They have acquired land at high rates and are plagued by high inventory.
CANARA EQUITY TAX SAVER
Investment strategy followed: The fund follows a growth strategy with no market cap bias. However, the fund is tilted more towards large caps.
Calls that worked: Our exposure to the consumer and pharmaceutical space has done well for the fund. Both the sectors are less volatile and cyclical in terms of performance and provide a decent margin of safety. The portfolio beta is at 0.91, which is relatively lower than the market beta. In fact, most of our portfolios are defensive.
Stocks that have done well: Jubilant Foodworks has been a star performer. Other stocks like Cadila and Torrent Pharma have also done well.
Stocks he would grab: Pharma continues to look good, especially companies that have a strong domestic base with a reasonable amount of network in developed and developing countries. Further, look at companies with a consistent, positive and growing cash flow so they can keep their businesses afloat.
Stocks he would avoid: Realty and construction sector stocks.
"WE AVOID STOCKS OF COMPANIES THAT REQUIRE FREQUENT INFUSION OF CASH TO GROW"
Harsha Upadhyaya,
Executive Vice-president and fund manager, equities, UTI Mutual Fund
Investment strategy followed: The main focus of the fund is to capitalise on opportunities arising in the market by responding to the dynamically changing Indian economy.
The fund employs a focused investment strategy by investing in the promising sectors of the economy in a concentrated way.
Calls that worked: Maintaining overweight position on Titan and Petronet LNG; and staying away from infrastructure and construction stocks.
Calls that did not work: Delayed exit from sugar stocks when the sector fundamentals turned for the worse. Strategy that generated alpha: Large overweight position on Titan and Petronet LNG resulted in significant alpha in the last one year.
Stocks he would grab: Reasonably priced stocks that are on high growth trajectory with proven business models and sound management.
Stocks he would avoid: Stocks that require frequent infusion of cash to grow, have low predictability and high volatility of cash flows and earnings, and are low on governance and with questionable management practices.
Advice to investors: I would suggest investments in well-managed and consistently performing diversified equity funds.
Personal investment strategy: Not only my career interests but also my investment interests are completely aligned with investors of the fund that I manage. Our family equity investments are all in UTI Opportunities Fund.
"MOST OF THE INVESTMENT AND CONSUMPTION SECTORS STOCKS OFFER GOOD POTENTIAL"
Aswini Kumar,
Fund Manager, Reliance Mutual Fund
Investment Strategy-growth/value: Our overall investment strategy is a combination of both growth and value investment.
Investment strategy of the fund: Investment philosophy of the fund is to provide risk-adjusted returns. The overall aim of Reliance MIP is to target returns of 1.5-2.00 percentage points higher than bank fixed deposits over a cycle.
Calls that worked: No comments.
Calls that did not work: No comments.
Strategy that generated alpha: Exposure to equities in the portfolio has created alpha for the monthly income fund.
Stocks he would grab: We would prefer stocks of companies with good business models, which are undervalued in the market. Stocks he would avoid: We would avoid low margin and low return businesses.
Advice to investors: India stock markets will provide good returns over next three years. Most of the investment and consumption sectors stocks offer good upside potential going forward.
Personal investment strategy: Personal fund investment is done in large diversified funds of Reliance Equity schemes and Reliance MIP through systematic investment.
"WE FOLLOW A DISCIPLINED APPROACH AND ADHERE TO THE OBJECTIVE OF THE FUND"
Alok Singh,
Head - Fixed Income & Structured Products, BNP Paribas Mutual Fund
Investment strategy-growth/value: Our overall investment strategy evolves from the macro-valuationsentiment (MVS) framework that is overlaid with the investment objective of the respective fund.
Investment strategy of the fund: The broad investment objective of fund is to beat the inflation and give better returns than short-term bank fixed deposits.
Satisfaction level: We are satisfied with the fund's performance and continue to focus on delivering superior performance for our investors.
Calls that worked: We follow a disciplined investment approach and adhered to the investment objective of the fund.
Calls that did not work: No comments.
Advice to investors: One should look at systematic allocation across asset classes with the objective of achieving one's financial goals.
Personal investment strategy: I believe that the fund selection should be governed by an individual's investment objective and his risk-taking abilities. This simply means that investments should depend on financial goals and the time horizon in which one wants to achieve these goals.
"WE SEE INTEREST RATES HEADING HIGHER BEFORE TOPPING OUT BY EARLY NEXT YEAR"
Puneet Pal,
Fund manager, UTI Mutual Fund
Investment strategy - growth/value: We follow a combination of growth and value strategy in consonance with our views on the market.
Investment strategy of the fund: We have largely been value-oriented as interest rates have been volatile and we have been managing the portfolio conservatively. We look to maintain low duration with a high accrual bias and not to take any undue credit risk.
Strategy that generated alpha: We were conservative in the middle of last year when interest rates started going up and built up a portfolio with high accrual and relatively low duration risk. This helped us in delivering better returns.
Calls that worked: The decision to keep high cash component when interest rates started moving up worked in favour of the fund.
Calls that did not work: We did not expect short term rates to move above 10%.
Interest rate outlook: We believe with the inflation trajectory moving up, interest rates are headed higher before topping out by late this year or early next year. We expect interest rates to stabilise by early next year.
Personal investment strategy: I invest in both equity and debt funds. Debt funds impart stability to one's portfolio and are a better option than bank fixed deposits in terms of tax adjusted returns. I believe in relative value and invest in funds that offer better risk reward ratio as they always deliver over a longer time horizon as compared to high beta portfolio's.
Like Formula One, managing a mutual fund is not a one-race affair. You have to perform race after race and season after season to be called a true champion. Michael Schumacher and Ayrton Senna were not one-race or one-season wonders. They finished on the podium on several occasions.
In this section, we feature fund managers who have managed to ride through good and bad market conditions with their right calls and timely decision making by adopting a combination of aggressive and defensive strategies to emerge as frontrunners over several seasons.
Their consistency and longevity in terms of the performance of the schemes they managed helped investors emerge victorious in the game of investment and ensured them a place in our list of winning fund managers.
Anand Radhakrishnan,
Senior Vice-president and portfolio manager (Equity), Franklin Templeton Investments
Investment strategy of the fund: Growth stocks form a large component of the portfolio. The fund has tried to capitalise on emerging opportunities in value stocks and cyclicals.
Calls that worked: Over the last one year (ended April 2011), the Bharti Airtel holding has been one of the key contributors to the fund's performance.
Calls that did not work: Some holdings in the material and industrial sectors-Sterlite Industries and Bhel-have underperformed. This is in line with the broad underperformance of these sectors amidst concerns about macro headwinds and their impact on the pace of investment activity.
Stocks he would grab: We seek to invest in companies that are wellmanaged; generate high return on capital and demonstrate the ability to deliver sustainable growth.
Stocks he would avoid: We would avoid momentum stocks (characterised by high volatility, valuation and governance risks). We remain cautious on the real estate sector due to the lack of transparency and absence of compelling valuations.
Advice to investors: We are positive on the consumption and investment themes, which are likely to remain the main drivers of the Indian economy over the medium term.
Personal investment strategy: I avoid short term performance comparisons - history is replete with examples highlighting the pitfalls of this approach. Invest in line with financial goals and risk appetite.
Kenneth Andrade,
Chief Investment Officer, IDFC Mutual Fund
Investment strategy of the fund: It is a growth-oriented fund that looks for companies with business models that are growing faster than the listed environment. The tag line for the fund is that it is an unrestricted-go-anywhere equity fund.
Calls that worked: Polarised entire portfolio into consumer part of the economy, without taking any exposure to the infrastructure or capital goods sectors
Calls that did not work: The information technology sector was one of the better performing sectors in the last one year and we did not participate in the same considering our exposure was limited.
Stocks he would grab: Monopolies in a capitalist environment. These businesses come with all the pricing power in their industry.
Stocks he would avoid: Stocks of companies that build their businesses based on availability of funds through capital dilution. We dislike management that have poor financial discipline or excessive debt.
Advice to investors: On the equity side over the next two years concentration of portfolios will have their reward. On the other hand, fixed income is close to doubledigit yield. I don't believe in an environment such as this, equities could be very rewarding.
Personal investment strategy: I like the buy-and-hold strategy. Conviction in the portfolio is best defined by this metric. However, the underlying businesses should be robust enough to undertake any cyclical downturn.
Sankaran Naren,
Chief Investment Officer, Equity, ICICI Prudential Mutual Fund*
Investment strategy followed: The fund has the mandate of active cash management which helps it effectively capitalise on volatility. Since it is a flexi-cap fund, it balances between large caps and mid caps based on adequate divergence in valuation.
Strategy that created alpha: Dynamic Plan has generated alpha historically using three methods-calibrating cash levels in the portfolio using a model that tracks price-to-book-value of the benchmark index; small and mid-cap allocation and sector weightage is based on a risk-return trade-off.
Calls that worked: The fund was underweight in the banking sector in the last quarter of 2010. This helped the portfolio when the banking sector corrected thereafter.
Calls that did not work: Being relatively underweight on the FMCG sector.
Stocks he would grab: Fundamentals are the prime reason for investing in the stock. However, factors such as ownership, beta of stock and investor psychology are kept in mind for contra participation. We would, therefore, invest in stocks or sectors which have attractive valuation. We are comfortable with sectors where we are sure of the quality of the business and the management.
Stocks he would avoid: We would avoid investing in sectors or stocks that are overly priced even if the stock or the sector is good fundamentally.
*Sankaran Naren managed the fund till January 2011. Sanjay Parekh currently manages the fund
Soumendra Nath Lahiri,
Chief Investment Officer, Canara Robeco Mutual Fund
Personal investment strategy: I tend to buy stocks directly. Having said that, the systematic investment plan (SIP) route for funds has worked best during volatile times. I tend to see stability in fund management and consistency. I would rather take a few percentage points lower return than tackle enhanced volatility.
Advice to investors: First time entrants should invest in a diversified equity fund with a large-cap bias, thematic funds should come in one's portfolio much later. With the high interest rate scenario and high inflation, we could be running into a lot of headwinds.
CANARA INFRASTRUCTURE FUND
Investment strategy followed: The fund has a large cap bias and it tends to have a combination of growth and value stocks. The infrastructure fund is a theme-based fund hence it has to restrict itself to sectors covered under it.
Calls that worked: Being overweight on cement has worked for the fund since it has done relatively better than other stocks in the infrastructure space in the last one year. Avoiding real estate and construction companies has also worked for the fund.
Calls that did not work: Stocks such as ABC Infra Logistics have been a drag and so have utility companies such as Gujrat Power, which has increased capacity but not running up to expected capacity utilisation levels.
Stocks he would grab: We might add stocks in the power equipment space since they offer good visibility in earnings, with companies executing more orders considering this is the last year of the current five year plan. We are looking at the telecom space with stocks such as Bharti since the worst seems to be behind them, although it is a contrarian call. The competitive intensity has slightly tapered off and the regulations now allow companies to explore mergers and acquisitions.
Stocks he would avoid: Realty and construction sector. Most real estate companies are over leveraged with no headroom to grow without taking incremental debt. They have acquired land at high rates and are plagued by high inventory.
CANARA EQUITY TAX SAVER
Investment strategy followed: The fund follows a growth strategy with no market cap bias. However, the fund is tilted more towards large caps.
Calls that worked: Our exposure to the consumer and pharmaceutical space has done well for the fund. Both the sectors are less volatile and cyclical in terms of performance and provide a decent margin of safety. The portfolio beta is at 0.91, which is relatively lower than the market beta. In fact, most of our portfolios are defensive.
Stocks that have done well: Jubilant Foodworks has been a star performer. Other stocks like Cadila and Torrent Pharma have also done well.
Stocks he would grab: Pharma continues to look good, especially companies that have a strong domestic base with a reasonable amount of network in developed and developing countries. Further, look at companies with a consistent, positive and growing cash flow so they can keep their businesses afloat.
Stocks he would avoid: Realty and construction sector stocks.
Harsha Upadhyaya,
Executive Vice-president and fund manager, equities, UTI Mutual Fund
Investment strategy followed: The main focus of the fund is to capitalise on opportunities arising in the market by responding to the dynamically changing Indian economy.
The fund employs a focused investment strategy by investing in the promising sectors of the economy in a concentrated way.
Calls that worked: Maintaining overweight position on Titan and Petronet LNG; and staying away from infrastructure and construction stocks.
Calls that did not work: Delayed exit from sugar stocks when the sector fundamentals turned for the worse. Strategy that generated alpha: Large overweight position on Titan and Petronet LNG resulted in significant alpha in the last one year.
Stocks he would grab: Reasonably priced stocks that are on high growth trajectory with proven business models and sound management.
Stocks he would avoid: Stocks that require frequent infusion of cash to grow, have low predictability and high volatility of cash flows and earnings, and are low on governance and with questionable management practices.
Advice to investors: I would suggest investments in well-managed and consistently performing diversified equity funds.
Personal investment strategy: Not only my career interests but also my investment interests are completely aligned with investors of the fund that I manage. Our family equity investments are all in UTI Opportunities Fund.
Aswini Kumar,
Fund Manager, Reliance Mutual Fund
Investment Strategy-growth/value: Our overall investment strategy is a combination of both growth and value investment.
Investment strategy of the fund: Investment philosophy of the fund is to provide risk-adjusted returns. The overall aim of Reliance MIP is to target returns of 1.5-2.00 percentage points higher than bank fixed deposits over a cycle.
Calls that worked: No comments.
Calls that did not work: No comments.
Strategy that generated alpha: Exposure to equities in the portfolio has created alpha for the monthly income fund.
Stocks he would grab: We would prefer stocks of companies with good business models, which are undervalued in the market. Stocks he would avoid: We would avoid low margin and low return businesses.
Advice to investors: India stock markets will provide good returns over next three years. Most of the investment and consumption sectors stocks offer good upside potential going forward.
Personal investment strategy: Personal fund investment is done in large diversified funds of Reliance Equity schemes and Reliance MIP through systematic investment.
Alok Singh,
Head - Fixed Income & Structured Products, BNP Paribas Mutual Fund
Investment strategy-growth/value: Our overall investment strategy evolves from the macro-valuationsentiment (MVS) framework that is overlaid with the investment objective of the respective fund.
Investment strategy of the fund: The broad investment objective of fund is to beat the inflation and give better returns than short-term bank fixed deposits.
Satisfaction level: We are satisfied with the fund's performance and continue to focus on delivering superior performance for our investors.
Calls that worked: We follow a disciplined investment approach and adhered to the investment objective of the fund.
Calls that did not work: No comments.
Advice to investors: One should look at systematic allocation across asset classes with the objective of achieving one's financial goals.
Personal investment strategy: I believe that the fund selection should be governed by an individual's investment objective and his risk-taking abilities. This simply means that investments should depend on financial goals and the time horizon in which one wants to achieve these goals.
Puneet Pal,
Fund manager, UTI Mutual Fund
Investment strategy - growth/value: We follow a combination of growth and value strategy in consonance with our views on the market.
Investment strategy of the fund: We have largely been value-oriented as interest rates have been volatile and we have been managing the portfolio conservatively. We look to maintain low duration with a high accrual bias and not to take any undue credit risk.
Strategy that generated alpha: We were conservative in the middle of last year when interest rates started going up and built up a portfolio with high accrual and relatively low duration risk. This helped us in delivering better returns.
Calls that worked: The decision to keep high cash component when interest rates started moving up worked in favour of the fund.
Calls that did not work: We did not expect short term rates to move above 10%.
Interest rate outlook: We believe with the inflation trajectory moving up, interest rates are headed higher before topping out by late this year or early next year. We expect interest rates to stabilise by early next year.
Personal investment strategy: I invest in both equity and debt funds. Debt funds impart stability to one's portfolio and are a better option than bank fixed deposits in terms of tax adjusted returns. I believe in relative value and invest in funds that offer better risk reward ratio as they always deliver over a longer time horizon as compared to high beta portfolio's.
