The recategorization of Mirae Asset India Equity is a good move

By Morningstar Analysts |  04-04-19 | 
 

There seems to be some amount of consternation amongst investors with regards to the recategorization of Mirae Asset India Equity.

Launched in 2008, Mirae Asset India Opportunities fund was renamed Mirae Asset India Equity post recategorization, as mandated by the Securities and Exchange Board of India, or SEBI. Hence, in 2018, it was placed under the multi-cap category.

From May 1, 2019, the fund will once again be recategorized as a large-cap offering. Consequently, the name will change to Mirae Asset Large Cap Fund.

The fund house is of the opinion that the large-cap category is the right one since the fund has been running a large-cap heavy portfolio over the past four years.

A perspective

In July 2018, Morningstar’s analyst Nehal Meshram had taken an in-depth look at the fund. Below are some takeaways from her report. You can read the brief note here.

  • The strategy of the fund is to invest across sectors, market caps, and themes. While the fund has the flexibility to invest across market caps, historically the manager has predominantly invested in large-cap, high-growth companies at reasonable prices. Traditionally, the fund held a significant stake of around 75% in large size companies, focusing primarily on high-growth stocks.
  • The investment philosophy of the fund is built on three core principles: quality businesses with stable earnings, strong management, and attractive valuation. The fund sports a well-diversified portfolio, free from a strong bias to any particular sector and without excessive exposure to a single stock. The portfolio typically holds 55-60 names and from a risk perspective, the volatility of the fund is reasonable.
  • Alpha is generated mainly through stock selection rather than sector rotation. The portfolio exhibits distinct positions at the stock level by taking a contrarian view. Fund manager Neelesh Surana has been willing to ride through periods of adversity and stick to his long-term views, with turnover below the category average, demonstrating patience and conviction in the stocks that he invested.

Conclusion

The change in the category should not be a concern given the fund’s historical large-cap tilt.

Morningstar has always noted its large-cap bent. In 2018, the fund got the Best Fund Award in 2018 under the Equity: Large Cap category.

Moreover, the fund manages a corpus of over Rs 10,000 crores. As inflows lead to a ballooning in size, it will have the advantage of being in large-cap space considering the liquidity aspect and the element of stability, which will help deliver consistent performance.

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Anil Bhatta
Apr 27 2019 12:44 PM
Agree with Kaustubh. Very well said
Kaustubh Mone
Apr 7 2019 05:45 PM
The consternation among investors is understandable and not really addressed in this article.

The point of investing in a multi-cap fund is that the investor wishes the manager to not be constrained by market-capitalization. "Alpha is generated mainly through stock selection" might describe the fund's strategy, but the point is that this fund's manager will now be constrained by how much can be invested in mid-cap/small-cap stocks, even if they show up in the research-team's stock-selection radar.

Why bother with recategorization? Why not leave it as multi-cap and continue investing in whatever capitalization they deem appropriate, rather than add this artificial restriction?

Perhaps these questions will be answered when they launch a new Multi-Cap fund..
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