The schemes from SBI Mutual Fund have gained a lot of positive traction in the recent past. This is no flash in the pan but a result of the magnitude of changes that have been undertaken by the fund house.
The fund house witnessed a lot of flux within the investment team in 2008. That was the very same year Sanjay Sinha quit and Navneet Munot moved over from Morgan Stanley Asset Management to assume the role of chief investment officer. In 2009, R Srinivasan joined as senior fund manager (equity).
They structured and streamlined processes within the fund house and built templates that were designed to be followed for individual funds, based on their individual mandates. This created a clear differentiation across their funds.
The most important outcome of these changes was the ability to consistently adhere to processes, which resulted in better execution of strategies that eventually got reflected in performance.
We recently analysed two funds managed by Sohini Andani.
SBI Bluechip
The fund follows a relative return strategy that seeks to outperform the benchmark and its peers on a consistent basis and uses in-house templates and processes that are key to the execution of the strategy.
The fund largely maintains an orientation towards growth stocks and is run as a benchmark-aware strategy with an internal sector limit of 8% and a stock limit of 5% versus the index.
Andani tends to invest in mid-caps with a relatively higher market capitalization and currently has an exposure of around 11% to mid caps. This is well within the fund's mandate of limiting the mid-cap exposure to 20% of the portfolio.
Under Andani’s helm (October 2010 - June 2016), the fund returned 13.31% (annualised) versus the large-cap category average of 8.96%, beating 96% of its peers and falling in the first quartile in terms of performance.
SBI Magnum Midcap
While we have a positive view on the fund’s strategy and believe that the process should hold the fund in good stead, we’d like to see the trend continue over a long term before we can build more conviction on this fund.
Magnum Midcap follows an absolute return strategy that invests in high-conviction ideas. While the fund can invest up to 20% in large-cap stocks, most of the existing large caps in the portfolio are mid caps that have grown in size. In a positive light, this gives the fund a cushion in terms of additional liquidity. Worth noting is that the fund has grown over 8x in size over the past two years. This has led to an increase in the number of holdings and resulted in a more diversified portfolio. The latest portfolio sports 53 stocks with the top 10 cornering 33% of the portfolio.
The team evaluates a company’s management and focuses on stocks that are able to meet their threshold in terms of CAGR and a consistent ROCE over a three- to five-year horizon.
Given the manager’s focus on bottom-up stock selection and investing in growth stocks for the long haul, the team tends to overlook short-term aberrations in favour of fundamentally strong companies that are able to deliver positive longer-term returns. Sharda Corpchem is a stock that typifies this approach.
While Andani invests in initial public offerings, or IPOs, these investments are based on a long-term view and in depth research given the relatively higher risks.
The fund's performance has not been very consistent. In 2013, it was 13.57%, streets ahead of the mid- and small- cap category average (2.31%). It delivered a below average performance the very next year and picked up again in 2015. But it's 1-, 3- and 5-year returns put it in a good light.
The fund analyst rating
Both funds are led by an experienced stock-picker, backed by a stable process and an experienced team that has been trained in-house. However, we would like to witness a sustained winning streak over a longer period. Hence, we have assigned a Bronze rating to each.
