Motilal Oswal Asset Management Company today announced the launch of the Motilal Oswal MOSt Focused 25, a predominantly large-cap, concentrated fund that will aim to invest in companies with moats, or sustainable competitive advantages, and strive to deliver strong inflation-adjusted returns over the medium to long term.
The AMC has a long-running portfolio management services (PMS) business overseen by Raamdeo Agrawal, Joint MD of Motilal Oswal Financial Services Ltd, whose flagship "Value Strategy" fund has delivered 25.92% CAGR since inception versus 18.78% for the Nifty, and which invests in 12-15 high-conviction picks that are held for long periods of time.
Economic moats form a key part of the stock-selection process with a focus on companies that demonstrate the quality of being able to keep competitors at bay, a theme often brought out in Agrawal’s annual Wealth Creation studies.
Motilal Oswal MOSt Focused 25, whose new fund offer (NFO) will open for subscription between April 22 and May 6, will look to operate with a similar strategy: a focused, buy-and-hold approach with an emphasis on high-quality, moat-worthy businesses (with a maximum of 25 stocks in the portfolio), and will be managed by Taher Badshah, the AMC’s Senior VP and Co-Head of Equities.
“The Motilal Oswal Group's 25 years of experience in equity markets, 17 years of presenting Wealth Creation studies and the AMC’s 10 years' experience in portfolio management makes our maiden actively-managed mutual fund to be uniquely positioned to provide the best of equity expertise to retail investors," says Aashish Somaiyaa, CEO, Motilal Oswal AMC.
To further entice retail investors, the fund also carries zero exit load, which will allow the fund holder to exit whenever he wants to.
Active the way to go
The AMC was earlier focused on introducing passive products--and has firsts such as a fundamentally-weighted ETF tracking the Nifty, a Nasdaq-tracking ETF, a gold ETF that allows conversion into physical gold, and a Gilt fund that passively tracks the 10-year benchmark--but now sees active management as the way to go, given Motilal Oswal’s name recognition with individual investors in the country.
"At the company level, equity has been our focus for years and we are looking to introduce a fund offering for retail investors driven by the same overarching philosophy emphasizing on research that encompasses our firm overall," adds Somaiyaa.
Divesification: 'Optimal but not excess'
Concentrated funds that typically hold less than 25 stocks are rare in the Indian fund industry, forming only 7% of total funds in the equity universe, managing only 1% of the Rs 1.63 trillion in equity fund assets (at the end of March).
Motilal Oswal MOSt Focused 25 will have a minimum of 65% in stocks from the top 200 companies of the BSE/NSE while investing up to 25% in stocks beyond the top-200 (but only above market capitalization of Rs 1,400 crore). To add a further conviction edge, each stock in the portfolio will have a minimum weight of 2.5%.
But even as the concentrated nature of the strategy could offer market-beating returns, run wrongly and it could backfire and underperform significantly. How will the fund managers tackle this? "That is where the research process and stock selection becomes vital," says Badshah. "Our focus at the fund would be long term and only investors with at least a three- to five-year horizon should consider investing. And over the long term, quality, wide-moat stocks have been shown to suffer less volatility than non-moat stocks."
Citing Warren Buffett, he adds, "The fund will seek to invest in businesses we understand, that have favourable long-term economics, trustworthy management and are available with a margin of safety."