DSP BlackRock T.I.G.E.R. brings back memories of the infrastructure boom a decade ago. This was one the first few offerings in the Indian market to position itself as an infrastructure fund.
In 2014, when senior fund analyst Himanshu Srivastava rated the fund, he gave it a Neutral rating. Even though he conceded to the presence of a strong investment team and an able asset manager, he felt that the fund fell short of expectations and he needed to see investors being rewarded on a sustained basis before he changed his mind. On the face of it, that seems strange. After all, an infrastructure fund cannot be expected to offer predictable and resilient returns. Its very character makes it prone to volatility. But there are two points to note here.
At that time, Morningstar did not have a separate ‘Infrastructure’ category. Hence this fund fell into the Large-Cap category. Moreover, this is not a sector fund but a thematic offering. The fund manager steers clear of four sectors: consumer staples, pharma, automobiles and technology, but the mandate is not extremely limited as a pure infrastructure play. Hence the entire basis of comparison was different.
Within the infrastructure category, T.I.G.E.R. is a sound offering though its returns are not shooting out the lights. In 2012, its performance was good, only to underperform the category average the next two years but bounce back in 2015. This year (though admittedly we are less than two months into 2017), it is ahead of the average.
During its decade-long history, the fund has seen various fund managers at the helm – Soumendra Nath Lahiri, Anup Maheswari, Apoorva Shah and Rohit Singhania, the current lead manager of this fund who has been with the fund house for over a decade.
Singhania has been the fund’s co-manager since June 2010. Under his watch (June 2010 to November 2016), it clocked an annualised return of 8% (category average: 6%), thus outperforming 74% of the competition on the return and Morningstar Risk-Adjusted Returns fronts. But it trailed its benchmark index S&P BSE 100 (9% annualised) during the very same period. Blame it on the rough patch that infrastructure stocks went through.
Himanshu Srivastava believes that in the infrastructure category, the fund manager’s execution of the strategy has been noteworthy and consequently upgraded the fund to Bronze.
He makes a few observations on the stock-picking strategy:
Singhania gives consideration to the top-down approach; he pays heed to the macroeconomic scenario to study the interest rate cycle and plays the economic reforms theme by scouting for issues where government deregulation can improve a sector's prospects. He then narrows down his focus to sectors and sub- sectors.
He has a bias for large-cap stocks, which account for 55%-60% of the portfolio. In the past few years, he has increased exposure to small-cap stocks given large number of companies operating in the infrastructure space fall in this segment. Consequently, small-cap stocks accounted for 25% of the portfolio as of December 2016.
He trades the portfolio quite frequently. Even long-held stocks are traded to profit from small price movements. The annual turnover ratio, 122% as of March 2016, stands as testimony to this fact.
The fund manager plies an unconstrained approach when picking stocks in this space. He emphasizes understanding the business, its key drivers, management capabilities, and scalability prospects. He prefers firms that he thinks have business traction, good growth prospects, proven execution capabilities, a strong balance sheet, and rising returns on equity and returns on capital employed. He studies a company's historical valuations and uses quantitative ratios such as price/book value, price/earnings, change in ROCE and ROE as a yardstick to estimate its fair value. He also invests in firms that are trading below their book values; this constitutes the portfolio’s value picks.
- CATEGORY: Sector-Infrastructure
- INVESTMENT STYLE: Large Growth
- TURNOVER: 122%
- MIN. INVESTMENT: Rs 1,000
- EXPENSE RATIO: 2.39%
- STAR RATING: 3 stars
- ANALYST RATING: Bronze
- FUND MANAGER: Rohit Singhania
- TOP 4 HOLDINGS: SBI, L&T, HDFC Bank, ICICI Bank at 26% of the portfolio
Read a brief synopsis of the analysis here.