Reliance Vision
Notwithstanding the recent changes to the mandate and the lacklustre showing in terms of performance, the fund has the wherewithal to deliver superior performance.
We believe the fund’s intrinsic strengths--a competent manager and strong process-- aid the fund. Ashwani Kumar is a competent manager in the large-cap space. He plies a growth-oriented approach while keeping a keen eye on valuations.
The manager tries to mitigate the inherent concentration risks by investing in quality stocks with a long-term buy-and-hold approach. The process acquires an edge on account of having a qualitative overlay in stock picking and results in a differentiated portfolio as compared with its peers as well as the index.
In terms of portfolio construction, the fund is benchmark-agnostic both at stock and sector levels. The manager runs a concentrated portfolio and seems to place a lot of emphasis on the quality of companies that he invests in. Kumar’s willingness to be contrarian doesn’t always seem to pay off, as has been the case in some of the recent years. The manager’s woes have been compounded by polarised equity markets wherein select stocks and sectors have driven a positive showing in the broader market.
As demonstrated in recent years, this strategy won’t always work; however, we believe it will come to the fore in a more broad-based market rally. Given Kumar's long tenure on the fund and a consistent approach, we think that the fund remains a viable proposition for patient investors who can digest volatility.
ICICI Prudential Large & Mid Cap Fund
The fund has a highly competent and experienced team, robust investment process, and well-structured portfolio methodology.
We regard portfolio manager Sankaran Naren as one of the highest-calibre investment professionals in the industry. Naren has proven himself as an astute portfolio manager with his ability to think differently and pick stocks that have the potential to generate higher returns. We like his distinctive long-term investment style, which has delivered top-quartile performance with a high level of consistency through the cycle.
The fund follows a large-cap approach, with a tilt toward value stocks. The portfolio strategy is driven by the manager's ability to construct a differentiated portfolio comprising stocks that become long-term winners. The strategy is centred on a top-down approach, however, fundamental bottom-up analysis of stocks is also critical element, and the team excels in this area of the investment process. Naren also makes contrarian calls in this fund even if it means bearing short-term pain.
The fund's low turnover ratio demonstrates the team's patience and conviction in the outcomes of the investment process. This has delivered risk-adjusted returns well ahead of competitors over the long term. The fund has also weathered the market downturn better than category peers and has provided protection from downside risk. There may be difficult quarters because of its value bent, but under Naren's stewardship, the fund should pay off handsomely in the long run.
Mirae Asset Emerging Bluechip
The manager’s distinctive stock-picking ability and skilled execution are the defining factors of this fund. Neelesh Surana is an experienced manager, and he also heads the equity function as CIO. He is aided by a small but experienced investment team and has been associated with the fund since its inception.
The fund’s long-standing process relies on proprietary models and research. The strategy is centered on a bottom-up stock-picking, and the team combines quantitative screens and fundamental analysis to find undervalued companies with strong balance sheets, earnings growth, and cash flows. Detailed company financial modelling focussing on revenue drivers and margins is used when calculating company valuations but, importantly, with an emphasis on long-term earnings.
Surana sticks to his convictions even if the situation is contrary to his investment decision. Alpha generation is driven mainly by superior stock selection and not by sector rotation.
The most promising stocks are added to a portfolio of 65-70 holdings, minimising concentration and liquidity risk. With this strategy, the fund has delivered above-average returns. The lower expense ratio vis-à-vis its peers also makes the fund more appealing.
The fund’s long record of excellence, the tenure and depth of its management team, and its adherence to a research intensive investment process hold our conviction in its prospects, but we believe there is substantial key-person risk.
Franklin India Equity Advantage
Frequent fund manager change is not desirable. However, this fund has seen three in the past four years. It landed in the hands of its current manager, Lakshmikanth Reddy, on May 2, 2016. Having said that, the investment team at Franklin Templeton is experienced and a close knit one.
Despite the categorization as a "large- and mid-cap fund," from the erstwhile flexi-cap approach, the investment process continues to be growth oriented. The emphasis on sustainability of growth rather than flashier momentum plays also continues. The intent is to identify companies with strong business models, durable competitive advantages, and quality management, which is typical of Franklin’s style of investing.
The investment team has consistently practiced its brand of research-oriented, long-term investing quite successfully over the years, and to that extent, it would help the manager in the management of this fund.
Reddy shows promise, but his execution capabilities remain untested, which is critical for the success of this fund. That being said, his extensive research experience would aid him in his job. Furthermore, he is supported by an investment team which 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.
Kotak Equity Opportunities
The Kotak Opportunities Fund is being managed by an able stock-picker who has executed this strategy with a lot of confidence.
The investment team has remained fairly stable since 2012 with the exception of one departure in 2013. Further, the fund’s performance under its current manager has remained consistent. We think that Harsha Upadhyaya brings a lot of dependability on the process front and expect his execution to yield a consistent performance on a forward-looking basis.
Although loosely aligned to the benchmark, Upadhyaya aims to generate returns via a combination of active stock bets and sector allocations versus the benchmark Nifty 50 Index. He uses the model portfolio created by the analyst team as his initial reference when choosing stocks. He applies a qualitative overlay focusing on growth companies that have sustainable competitive advantages. He scouts for stocks with strong brand names, businesses, and market shares and that are scalable, with the ability to generate steady cash flow, have good management capabilities, and trade at reasonable valuations.
Upadhyaya claims the internal limits don’t hinder his intrinsic investment style, which tends to be fluid and unconstrained. A small portion of the portfolio is invested in value picks based on the manager’s conviction levels. Upadhyaya also considers downside risk, corporate governance, and liquidity while building the portfolio, which imparts an attractive risk/reward profile to the fund.
Upadhyaya is an able manager, and his presence at the fund's helm is a positive. While sector constraints on the fund can help limit relative risk during downturns, we note that they can restrict the level of outperformance by forcing the manager to retain exposure to benchmark-heavy sectors, irrespective of his conviction levels.
