Why these equity funds got a Bronze rating

By Himanshu Srivastava |  17-08-21 | 
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About the Author
Himanshu Srivastava is a Research Analyst with Morningstar. He would like to hear from you, but cannot give financial advice.

We analysed two leading funds from small cap and flexi cap categories recently. Here is a brief analysis and overview of these funds which are being helmed by two veteran fund managers.

DSP Small Cap Fund

  • Star Rating: 3 stars
  • Analyst Rating: Bronze (Regular Plan)
  • Category: Small Cap
  • Fund Manager: Vinit Sambre, Jay Kothari and Resham Jain
  • Inception: June 2007
  • Return: 81.96% (1 year), 19.50% (3 year), 15.21% (5 year), 20.85% (10 year), 17.67% (since inception). Return of regular plan as on August 16, 2021
  • Date of Analysis: August 2021
  • Number of stocks: 67
  • Assets in top 10 holdings: 31%
  • Assets under management: Rs 8,266 crore (July 2021)
  • Investment Style: Small Growth
  • Total Expense Ratio: 1.90% (regular), 1.05% (direct)
  • Fund Overview 

Vinit Sambre took over the helm of this fund in June 2010. He is a proficient analyst with 18 years of research experience in the small/mid-cap space.

Vinit Sambre combines absolute and relative valuation measures when picking stocks in the small-cap space. He scouts for companies that have sustainable competitive advantages over their peers and dominant market shares in their industries. He also tracks company management decisions to see how they pan out. This is followed by meetings with the company’s management. Subsequently, he invests only when he is comfortable with the management’s assumptions, forecasts, and capabilities.

Vinit Sambre predominantly invests in small caps. The small- and mid-cap allocation together comprises almost 100% of the portfolio compared with the category average of 85%-90%. While constructing the portfolio, Sambre continues to focus on good businesses and avoid frothy ones, ensuring that the quality of the portfolio is not diluted. His investment approach is clearly borne out by the portfolio, where he invests in companies that have able managements, strong competitive advantages, and leadership positions in the areas in which they operate.

HDFC Flexi Cap Fund

  • Star Rating: 2 stars
  • Analyst Rating: Bronze (Regular Plan)
  • Category: Flexi Cap
  • Fund Manager: Prashant Jain and Sankalp Baid
  • Inception: January 1995
  • Return: 56.89% (1 year), 12.54% (3 year), 13.42% (5 year), 13.54% (10 year), 18.47% (since inception). Return of regular plan as on August 16, 2021
  • Date of Analysis: August 2021
  • Number of stocks: 54
  • Assets in top 10 holdings: 54%
  • Assets under management: Rs 25,436 crore (July 2021)
  • Investment Style: Large Value
  • Total Expense Ratio: 1.74% (regular), 1.30% (direct)
  • Fund Overview

Jain has a big influence on HDFC's investment strategy in his role as CIO, which is a positive. He has played a key part in shaping the research infrastructure that works well around him.

Prashant Jain isn't benchmark-conscious while constructing the portfolio. However, when he fails to uncover enough stocks that can generate alpha or believes that valuations are stretched, he doesn’t shy away from aligning the portfolio with index. But that is not to suggest that he is a closet indexer.

The process is robust with research at its core. Prashant Jain adopts a hands-on approach to research, to get an in-depth understanding of the business and ferret out companies with robust business models, clean balance sheets and competitive strengths. Though the bottom-up style is clearly integral to Jain's investment style, the top-down isn't ignored either. Both relative and absolute valuation methods are used to pick stocks. The investment style can be broadly described as growth at a reasonable price. Though Jain is mindful of the benchmark index weights here, he is not benchmark aligned. Hence, he doesn't shy away from taking underweight/overweight positions at sector or stock level when he spots opportunities.

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Karan Kapadia
Aug 23 2021 07:15 PM
 Prashant Jain has OUTLIVED his utility in the stock market.
Aug 18 2021 12:46 AM
 More words of wisdom from the experts who told us that FT's debt funds are worthy of gold & silver rank. Keep up the good work.
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