Though DSP BlackRock Small and Midcap has underperformed the category average over the past three calendar years, this year it has been doing fairly well.
Vinit Sambre co-managed since July 2012 and took independent charge in July 2015. While the fund’s broader investment strategy remained intact, Sambre has a different investment style compared with Apoorva Shah (the earlier lead manager). For instance, factors such as market sentiment, news flow, and momentum formed the crux of Shah’s investment approach, which often led to above-average turnover in the fund. Sambre, on the other hand, plies his signature style here of buying into growth-oriented quality stocks and staying invested for the long haul. Once he took over as lead manager, he restructured the portfolio in line with his investment thesis. While he exited or trimmed exposure in stocks where he lacked conviction, he bought stocks where he had more confidence in the company’s long-term prospects, business strength, and corporate governance standards.
Sambre predominantly invests in small- and midcap stocks, which hovers between 75% and 80% of the portfolio. The fund’s exposure to such stocks is higher than the category norm (roughly 70%). As per the fund’s mandate,
Sambre has the liberty to invest up to 35% of the assets in large-cap stocks, which accounted for 15% of the portfolio as of August 2016.
The strategy also involves theme-based choices where Sambre scouts for turnaround stories. His current investments in engineering and auto ancillary stocks, which stand to benefit from the turnaround in the economy, bear out this aspect of the strategy. His exposure to Vardhman Textiles and K.P.R Mills among others constitutes the value portion of the portfolio. Sambre maintains a fairly diversified portfolio of 60-65 stocks, with the allocation to top 10 stocks accounting for roughly 35% of assets.
Sambre combines absolute and relative valuation measures when picking stocks in the small/mid-cap space. He scouts for companies that have sustainable competitive advantages over their peers and dominant market shares in their industries. He also tracks company management decisions to see how they pan out. This is followed by meetings with the company management. Subsequently, he invests only when he is comfortable with management’s assumptions and forecasts and its capabilities.
Sambre is valuation-conscious but does not mind paying a premium for a company if it satisfies all of his investment criteria. He looks at quantitative parameters such as returns on equity, returns on capital employed, P/E and price/book value as compared with the intrinsic growth prospects of the company. He also invests a portion of the portfolio in companies trading well below their book values, which constitute his value picks. Here he looks for companies that are affected by poor market conditions and macroeconomic scenarios rather than deteriorating fundamentals.
The top-down approach sometimes is used to increase exposure to sectors that are looking attractive on valuations and future outlook. Given the bias for small/mid-cap stocks, Sambre adopts a buy-and-hold approach while constructing the portfolio. Expectedly, while the fund is likely to gain more than a typical peer in up markets, it also runs the risk of faring worse in a downturn.
- Category: Small/Mid Cap
- Fund Manager: Vinit Sambre
- Expenses: 41%
- Analyst Rating: Silver
- Star Rating: 2 stars
