DSP BlackRock Tax Saver
- Analyst Rating: Neutral
- Star Rating: 4 stars
- Investment Style: Large Growth
- Benchmark: BSE 200
- Fund Manager: Rohit Singhania
- Morningstar Analyst: Himanshu Srivastava
- Date of Analysis: December 2017
The fund’s gestation period will be longer in a more competitive category with strong and established strategies.
Rohit Singhania took over the fund’s mantle from Apoorva Shah in July 2015.
The fund’s strategy hasn’t changed under Singhania. He runs it in line with its investment mandate, which allows him to adopt a fluid investment approach without any bias or restrictions in terms of stocks or sectors. In the manager’s own words, this fund doesn’t have a defined investment approach, which in turn provides him the liberty to capitalise on any investment opportunity that he sees in the market, provided it makes a grade on his selection parameters. Consequently, the fund’s portfolio turnover tends to be on the higher side.
While an unconstrained process can be very rewarding, it is also risky. A wrong bet can lead to significant underperformance. Also, the absence of a rigidly defined method means investments are also made on a somewhat intuitive basis. Hence, it must be noted that the success of the investment process largely depends on Singhania’s execution skills. Pleasingly, he has been in control of the strategy since taking over its reins.
ICICI Prudential Long Term Equity Fund (Tax Saving)
- Analyst Rating: Neutral
- Star Rating: 3 stars
- Investment Style: Large Growth
- Benchmark: BSE 200
- Fund Manager: George Joseph
- Morningstar Analyst: Himanshu Srivastava
- Date of Analysis: October 2017
The fund is yet to prove its mettle under the current manager.
ICICI Prudential Long Term Equity Fund (or erstwhile ICICI Prudential Tax Saver) has passed through multiple hands in the past few years; Sankaran Naren, Munzal Shah, Chintan Haria and George Joseph.
Despite the changes, the investment strategy largely stays the same. Joseph plies a free-flowing multi-cap strategy and follows a benchmark-agnostic approach for constructing the portfolio. He is fairly valuation conscious and stays away from expensive stocks/sectors.
He scouts for companies having good management with strong long-term track records, good free cash flow generating capabilities, and strong balance sheets. Joseph did make a few modifications to the strategy to suit his investment style after taking over. For instance, under Haria, short-term trading used to be an integral part of the investment strategy. Joseph, however, maintains that he would rather adopt a buy-and-hold approach, hence doing away with the timing risk.
Likewise, he prefers to stay away from investing in highly leveraged stocks. He has realigned the portfolio since taking over the fund in line with his investment thesis and understanding of macroeconomic scenarios.
The fund hasn’t done badly despite the changes at the helm. In 2017, it underperformed as the manager’s valuation-conscious investment approach and strategy of taking contra bets has been out of favour. We would like to evaluate Joseph’s ability in executing the process over a market cycle to build conviction.
SBI Magnum Taxgain
- Analyst Rating: Neutral
- Star Rating: 3 stars
- Investment Style: Large Growth
- Benchmark: BSE 200
- Fund Manager: Dinesh Balachandran
- Morningstar Analyst: Himanshu Srivastava
- Date of Analysis: September 2017
The fund must find its feet under a new manager.
Dinesh Balachandran took over the reins in September 2016. This is his first stint at running a diversified equity fund.
Despite the change at the helm, the fund's broader framework has remained consistent.
It continues to be a benchmark-aware large-cap offering. However, Balachandran's investment style is strikingly different from that of his predecessor.
Shroff used to ply a growth-oriented investment approach with valuation playing second fiddle. He was strict with his stock selection and typically preferred investing in leaders within a sector. This lack of focus on valuations combined with penchant for growth stocks resulted in a big risk of underperformance in market downturns.
Balachandran, on the other hand, focuses on valuations. He is flexible with his stock picks, too. He won't shy away from investing in a company that is not a best-in-class but has a good risk/reward prospect. Given the change in investment style, the fund's current portfolio construction is significantly different from that of Shroff.
This has led to the change in its risk/reward profile and performance pattern. For instance, given Balachandran's value focus, the fund can be expected to struggle in momentum-driven and growth-oriented markets.
Historically, we have not been too impressed with this offering. Balachandran has the tough task of competitively establishing this fund among peers. His managerial skills and execution capabilities and the long-term viability of the investment strategy under him are yet untested and need to be evaluated over time.
Axis Long Term Equity
- Analyst Rating: Silver
- Star Rating: 4 stars
- Investment Style: Large Growth
- Benchmark: BSE 200
- Fund Manager: Jinesh Gopani
- Morningstar Analyst: Kavitha Krishnan
- Date of Analysis: June 2017
The fund stands out among peers and remains a clear outperformer over the long term.
Jinesh Gopani has been able to execute the strategy with consistency so far. We think that he stands out as an efficient stock-picker.
Although the growth in fund size is consistently monitored by the fund house, we are wary of the pressure that it puts on existing resources.
Gopani looks for companies that have the capability to grow over a three- to five-year time period and places a lot of emphasis on finding quality names at reasonable valuations. The portfolio typically invests about 50% to 70% in largecap names with the remaining portion of the portfolio invested in small- and mid-cap stocks. The team follows a detailed research process that aims to identify under-researched ideas. The portfolio is made up of Gopani's high-conviction ideas and has a distinct character. The portfolio is markedly benchmark-agnostic and typically shares a very low overlap of about 25% to 30% with the S&P BSE 200 Index. From a valuation perspective, the team tends to invest in stocks that are slightly expensive in relative terms as long as they meet its internal quality and growth criterion.
Overall, we think that the fund has remained true to its mandate. Despite its recent short-term underperformance and the changes in the investment team, we think that Gopani is capable of turning things. His consistent and efficient execution of the strategy, and the positive long-term performance has reinforced our faith in this offering.
HDFC TaxSaver
- Analyst Rating: Silver
- Star Rating: 3 stars
- Investment Style: Large Growth
- Benchmark: BSE 200
- Fund Manager: Vinay Kulkarni
- Morningstar Analyst: Kavitha Krishnan
- Date of Analysis: May 2017
A competent manager and a solid process reflected in the fund’s performance drive our conviction.
The fund is managed by Vinay Kulkarni, who in our opinion is an experienced and competent manager. He is backed by HDFC's strong and stable investment team, which we think stands out for its research capabilities.
The investment process is key to our favourable view here: Kulkarni plies a multicap approach, investing roughly 70% in large caps and the remaining in small/mid-caps. Like all managers at HDFC Asset Management Company, he places a lot of emphasis on understanding the business and has an inherent quality bias while investing. His portfolio holdings typically span a two- to three-year investment horizon. However, it isn't uncommon for stocks to feature in the portfolio for significantly longer time frames.
We think Kulkarni's focus on the long-term strength of a business is a positive and it complements the broader style of investing followed by the investment team at the AMC. While Kulkarni considers the opportunity cost of holding a stock over the long term, he does not tend to exit stocks solely based on valuations. Kulkarni also takes large stock and sector bets, often against the grain. We believe this is linked to the research-intensive approach and the caliber of the investment team, which helps pull off such a strategy. Overall, we are fairly impressed with his investment style and solid execution of the investment process. We also note that the process is well-defined and repeatable.
That said, certain risks associated with the investment process need to be highlighted.
Kulkarni's sizeable high conviction bets can result in some underperformance over the short term. Nevertheless, we believe that over longer time frames when markets experience a full cycle, the manager's investment style and expertise will hold the fund in good stead.
Franklin India Taxshield
- Analyst Rating: Bronze
- Star Rating: 4 stars
- Investment Style: Large Growth
- Benchmark: BSE 200
- Fund Manager: Lakshmikanth Reddy
- Morningstar Analyst: Himanshu Srivastava
- Date of Analysis: May 2017
Change at the fund’s helm and strategy warrants a relook at its Gold rating.
After Anand Radhakrishan, Lakshmikanth Reddy took over in 2016. Although R. Janakiraman is the named comanager here, Reddy is the primary manager.
The change in the fund’s strategy is significant, too. While earlier it had a more definite mandate of investing around 70% in large-cap stocks and 30% in small/mid-cap stocks, it is now managed with a flexicap approach, which enables the manager to invest without paying heed to the benchmark index, market cap, or any specific style of investing. The change in the strategy is largely to align it with Reddy's skill-sets and to capture wider range of investment opportunities in the fund.
Although the investment team has a reasonably good track record in running flexicap strategies, which is positive, it should be noted that it will also change the fund’s risk/reward profile going ahead. Further, the changes here have made the fund’s past track record less relevant.
Earlier, the fund’s Morningstar Analyst Rating of Gold was driven by our conviction in Radhakrishan’s managerial skills and his ability to execute the strategy with a good degree of precision. Reddy, on the other hand, shows promise, but his execution capabilities remain untested, which is critical for the success of this fund given the nature of its strategy. Hence, in our opinion, a downgrade here is inevitable.
That being said, Reddy's extensive research experience will aid him in his job. Furthermore, he is supported by a close-knit investment team that ranks among the best in the industry.
We are fairly impressed with its disciplined investment approach and believe that it should hold the fund in good stead. Therefore, despite the downgrade, the fund merits a positive rating.
Reliance Tax Saver (ELSS)
- Analyst Rating: Bronze
- Star Rating: 4 stars
- Investment Style: Large Growth
- Benchmark: BSE 200
- Fund Manager: Ashwani Kumar
- Morningstar Analyst: Kavitha Krishnan
- Date of Analysis: April 2017
This fund is run by a long-standing manager and is distinct in terms of character.
Manager Ashwani Kumar differentiates Reliance Tax Saver from a typical ELSS fund on several counts. While most ELSS funds maintain a multicap portfolio with a significant allocation towards large-cap stocks, Kumar can tend to invest substantially in small/mid-caps based on his conviction levels. Further, he runs a concentrated portfolio and can tend to invest in slightly less-liquid securities, given the three-year lock-in period.
While picking stocks, Kumar typically seeks companies with strong growth prospects that he believes are trading at a discount to their intrinsic value. In effect, he attempts to balance both the growth and valuation aspects while investing.
It comes as no surprise that this approach has led him to invest in the small/mid-cap space where markets tend to misprice stocks due to low coverage. When building the portfolio, Kumar typically takes sizable underweight/overweight positions versus the S&P BSE 100 Index and the Morningstar Category based on his conviction.
Clearly, the unconstrained approach provides the manager adequate flexibility to choose stocks and sectors from across the board. However, such a strategy’s success relies heavily on the portfolio manager’s ability to execute it skillfully.
The fund can tend to be driven by market cyclicality and outperform significantly in a midcap rally owing to its exposure in this segment.
Having said that, the current portfolio reflects a higher allocation to large-cap stocks than it did prior to 2014. We are of the view that Kumar is far more adept at operating in the large-cap space rather than in small/mid-caps.
The fund has an experienced manager at its helm, is supported by a strong team, and has remained a true-to-label product. The fund’s blistering showing in 2012 and 2014 shows what it is capable of accomplishing when things fall into place.
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