This fund manager runs a stellar mid-cap offering

By Morningstar |  22-03-19 | 
 

Franklin India Prima Fund managed by Janakiraman Rengaraju, Vice President & Portfolio Manager - Equities, Franklin Templeton India, has won the Morningstar Best Fund Award in Mid Cap Category for 2019. Janakiraman chats with Morningstar about what helped the fund succeed.

Congratulations on winning the Best Mid Cap Fund Category Award for Franklin India Prima Fund. What would you attribute the fund’s success to?

A willingness to, if required, overlook short term volatility/noise in business cycles as well as market cycles has helped the fund. A much higher emphasis on the long-term value drivers facilitates the practice of the earlier mentioned behaviour. The fund has also largely stuck to the middle path by focusing on established business models. Let me also add that the fund is well supported by an established research team that has bought into this investment philosophy very well.

The fund has been overweight consumer cyclicals, technology and energy. How have your bets played out?

A sustainable and good quality growth is the common thread that links most of the portfolio companies. It is far clearer to use this prism rather than industry classification approach. As a group, the investments in consumer cyclicals and technology have been fruitful. Like any normal portfolio, Prima too has seen its disappointments over the past three years. Where the disappointment has not been due to lack of competent response from companies to business challenges, the fund has persisted with such investments. A few cases have indeed caused frustration over a longer than expected period, but in totality this approach has helped the fund’s performance.

In which pockets are you seeing opportunities in the mid cap space currently?

Ironically, the year 2018 has brought in some relief to professional investors in midcap segment. A year ago, especially towards the end of 2017, it was difficult to find good quality businesses at acceptable valuations. The picture is quite different now. Wherever such opportunities have emerged, the fund has taken advantage. While the last six months have seen fairly large falls in many average quality businesses, the fund has consciously eschewed such cases.

Which kind of companies do you generally avoid?

In general, the fund selects businesses with a combination of good Return on capital employed, free cash flow, consistent execution and attractive growth. In a small number of cases though, we have compromised on growth.

The fund tries to avoid businesses that do not share the above-mentioned traits. In the portfolio, some companies may not appear to meet these criteria. Very likely, these are businesses going through a short-term challenge and our view is influenced by the expected improvements over the medium term.

How do you plan to sustain the fund’s performance in future?

Two factors should help sustain the future performance of the fund. A disciplined and consistent application of the stated investment philosophy should help the fund’s long-term performance. In a market that is getting more volatile, such an investment approach may emerge more valuable than in the past.

In addition, our country’s growth prospects over the next two decades look as promising as what we have witnessed in the past two decades. With such wind in its sails, the fund stands a good chance to post an attractive performance in future.

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