What must investors in Prashant Jain’s funds do?

By Himanshu Srivastava |  26-07-22 | 
 
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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.

After a long innings of over 30 years in the field of portfolio management, Prashant Jain, India’s longest serving and most experienced fund manager, decided to quit HDFC Mutual Fund.

Consistency has been Prashant’s hallmark, whether it is staying with the same fund house for nearly 29 years or being steadfast with his investment style. In his investing career spanning over three decades, he has seen several economic and market cycles, which very fund managers would have witnessed. Besides, these thirty years have seen an evolution of the mutual fund industry, markets, and investment styles. Amidst these changes, Prashant’s investment approach remained consistent and most importantly relevant throughout. Unsurprisingly, he continued to be among investors preferred list of managers, even when his funds went through a rough patch. On several occasions, he was down, but not out, which makes him a true poster boy of Indian mutual fund industry. Therefore, his exit did come as a shock to investors as well as industry.

An investment style that tested patience but delivered over the long-term  

Prashant’s investment style was simple, straightforward, and predictable, yet it was unique in several ways. He plied a valuation conscious investment approach with focus on investing in reasonably managed businesses, of reasonable quality, which offer relative or absolute growth.

But what made this investment approach unique was his unwavering focus on long-term buy and hold approach. The highlight of his investment style was his willingness to stay put in his high conviction but non-performing investments during troubled times. Even when the strategy was out of favour and the fund underperformed, he was not willing to deviate from his stated investment approach. He would rather prefer endure underperformance, even if it prolongs, in favour of his investment style and fund’s long-term prospects.

For investors in his funds, patience was the key, and that was tested on more than one occasions in the last few years. His funds went through a rough phase in the years 2013, 2015, 2019 and 2020, which dented its long-term track record and worsened their risk profiles. However, Prashant, with his trademark style, stood his ground and did not make any major change in the portfolio or drifted from his stated investment style despite underperformance. The result – A spectacular turnaround in the years 2014, 2016 and 2021, and the funds continue to do well this year too.

These turnarounds were not surprising for Investors who have stayed invested in Prashant’s fund for a long enough period and are well accustomed with his investment style. But for others, it was a test of patience, which most often than not paid-off handsomely if stayed invested.

The investment team

Prashant’s exit has created a vacuum in the team, but clearly it was a planned transition and fund house did prepare for it beforehand.

The fund house has appointed Chirag Setalwad as head equities and Shobhit Mehrotra as head fixed income. Both are old hand at the fund house, experienced, and apt fit for the role.

Over the last few years, the fund company has taken measures to expand the fund management team by hiring seasoned managers with varying investment styles. Some of the recent hires at the AMC include:

  • Navneet Munhot – The AMC hired Navneet Munot as their Managing Director and Chief Executive Officer effective February 2021. He has over 27 years’ experience in financial services. Prior to this, he worked with SBI Funds Management Private Limited as an Executive Director and CIO and was a key member of the Executive Committee since December 2008.
  • Gopal Agrawal - Joined the fund house on July 9, 2020. Prior to joining HDFC, he was with DSP Mutual Fund as Head of Macro Strategy & Senior Fund Manager. He was also associated with Tata Asset Management and Mirae Asset Global Investments India Ltd as CIO and Chief Investment Strategist. He was instrumental in setting up Mirae’s Indian fund management arm. He typically prefers plying a valuation conscious approach and runs a diversified portfolio.
  • Roshi Jain – Jain was the Vice President and senior portfolio manager at Franklin Templeton Asset Management has been hired as a Senior Vice President – Equities at HDFC AMC effective December 2021. We have covered her fund quite extensively in the past and have a positive opinion on her capabilities as a fund manager.
  • Rahul Baijal – He was a Senior fund manager at Sundaram Mutual Fund and joined HDFC Mutual Fund as a Senior Fund Manager as of July 2022. He was a specialist large cap manager at Sundaram and we have previously covered his funds while he was associated with them.
  • Srinivasan Ramamurthy - They have prompted Ramamurthy into fund management effective December 2021. Ramamurthy joined the AMC in October 2020 and was previously associated with Mahindra Manulife as a senior manager – equity funds. He manages the equity portion of a few of their hybrid funds.

The managers who will take over Prashant Jain’s funds

HDFC Balanced Advantage Fund

  • Category: Dynamic Asset Allocation
  • Star Rating: 4 stars
  • Analyst Rating (August 2021): Bronze
  • Analyst Rating (July 2022): Under Review
  • Fund Management since February 1994: Prashant Jain
  • Fund Managers to take over: Gopal Agrawal and Srinivasan Ramamurthy (equity), Anil Bamboli (debt)

HDFC Flexi Cap

  • Category: Flexi Cap
  • Star Rating: 3 stars
  • Analyst Rating (August 2021): Silver (Direct), Bronze (Regular)
  • Analyst Rating (July 2022): Under Review
  • Fund Management since June 2003: Prashant Jain
  • Fund Manager to take over: Roshi Jain

HDFC Top 100

  • Category: Large Cap
  • Star Rating: 2 stars
  • Analyst Rating (June 2021): Silver
  • Analyst Rating (July 2022): Under Review
  • Fund Management since June 2003: Prashant Jain
  • Fund manager to take over: Rahul Baijal

The team continues to benefit from the presence of Chirag Setalwad, who is seasoned manager and is now designated as Head-Equities. He is an in-house small and mid-cap specialist and is well ingrained into the philosophy and thought process that is followed at the fund house. In fact, all the fund managers have over a decade of portfolio management experience.

Above all, the presence of Navneet Munot as Managing Director and Chief Executive Officer is also a positive, which we believe would ensure the continuity of the business activity.

In addition to the managers, the team also have experienced analysts. Broadly the equity investment team continues to be well resourced.

Morningstar’s view

While the managers who have taken over the funds are competent and experienced, we would like to see how these funds evolve under them. These funds are attuned to Prashant’s investment style, and the new managers may bring in their own thought process and investment approach. Therefore, these funds may evolve under them, and we would like to observe and monitor this transition. We would also like to see how the new managers implements their investment style and the changes that it could trigger in the fund without compromising on its future prospects.

Hence as of now we have placed all the three funds Under Review.

What should investors do?

No knee-jerk reaction is required. The team has experienced managers and analysts and is well-resourced. Also, the managers who have taken over the funds have managed similar strategies in the past and therefore they fit into the role. Hence for now investors can stay put.

Having said that, they need to be observant towards the changes that could take place in the fund and portfolio given the change in manager. Every manager has his/her own style of investing. Therefore, a change in manager could result in the change in investment style as well as portfolio. But this should also be viewed objectively – if the managers are plying an investment style which is in line with their skillset and have a proven track record, then it shouldn’t be of much concern. In such cases, it is important to monitor and evaluate the execution and how well the changes, if any, are implemented.

Prashant’s fund used to have a value bias. This aspect was inherent to his investment style as well as in the funds he managed. For investors, who have invested in these funds given their value bent, a change here could be a potential area for them to revaluate the aptness of these funds in their portfolio.

A change in manager does not mean that the fund losses its appeal. Investors should give new managers time to settle down and show their management skills. Therefore, decision to remain or exit a fund due to a change in manager should be taken after carefully evaluation all the aspects and after a discussion with an investment advisor.

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ninan joseph
Jul 31 2022 11:39 AM
 It is so funny, people invest their money in mutual funds and then we are told not to make any knee jerk reaction when a fund manager leaves???????

What this means is investment is not made on the underlying assets or the theme based on which the fund was initially operated but based on the hair cut, clothes and shoes the fund manager wears. I have heard patients following specific doctors and not anyone when they want an operation to be done. But why is the same logic being used for investing. Whosoever the fund manager is, he must and should be guided by the theme or parameters based on which the fund was created and based on which people have invested money. I am sure people would have read the prospectus of the fund and not if the fund manager has two kids and his horoscope is written this way and that.

In the current context, this person worked for even bigger brand name called HDFC. People invest thinking that HDFC will hire the best of class professional to run the business. I dont think anyone would have given money to their fund because this fund manager was operating. If they did, then they are not following the basics of investment. Only in India, investors should worry about the fund manager, his character, his morality just like I search for an husband for my daughter. Crazy and illogical. It would be better to invest in Index ETF than these funds, where I need not worry about when XX will resign and YY will come in. Worry about the underlying assets of the funds and how well it is doing.

Guys like Nilesh Shah who was the head of AMFI was fined 30 lacks for doing naughty things in a fund. He belonged to Kotak. Both had brand values.

In God you trust and no one else.
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