These are the funds that got assigned the Gold and Silver ratings in 2022. In other words, the funds our analysts have the most conviction on. To understand what this means, do read what the rating indicates.
The funds are listed in the order of the analysis, the most recent given predominance. However, all the ratings have been assigned in CY2022.
AXIS LONG TERM EQUITY
Fund Manager Jinesh Gopani looks for companies that have the capability to grow over a 3- to 5-year period and seeks to find quality names at reasonable valuations. However, he can tend to invest in stocks that are slightly expensive in relative terms (reflected in the fund's higher price/earnings ratio) as long as they meet his quality-growth criterion.
The portfolio holds about 50%-70% large-cap stocks, while small and mid-caps constitute the remaining portion. The focus is on being able to identify companies with sustainable earnings growth potential, credible management, and good corporate governance practices. Stock-picking is based on fundamental bottom-up research with an emphasis on top-down risk parameters, liquidity, and internal volatility targets. From a financial standpoint, the team looks for companies with low capital gearing and strong balance sheets. It undertakes a 360-degree approach while evaluating a company by ensuring thorough channel checks are in place and spends time speaking to dealers, distributors, clients, and so on.
The fund house has a research universe of about 350 stocks bucketed into three segments based on the frequency and depth of coverage. It seeks to spend more time identifying fresh ideas and researching companies that are not as widely researched by the broader market. The research team also runs a live model portfolio, essentially a combination of its best ideas.
MIRAE ASSET EMERGING BLUECHIP
The investment philosophy centres around high-quality businesses with good credentials. The team combines fundamental analysis with quantitative screens, seeking firms with high earnings growth potential, strong balance sheets, and high cash flow. The team also looks for price value gap in stock selection and considers such metrics as P/E, P/B, and EV/EBITDA. The team further filters and invests in companies that generate EBITDA/cash flows of around 100 crores. It avoids smaller companies as the idea is not to buy in at an early stage but to invest in evolving mid-caps that have the potential to become large-caps.
While selecting mid-cap stocks, the managers Neelesh Surana and Ankit Jain typically look for slightly higher return on equity and growth rates as compared with large-cap stocks, given these stocks come with liquidity and other risks. Within the framework, a lot of emphasis is on qualitative analysis, such as management quality and execution capabilities. These are quantified by evaluating the trailing 10-year record, which helps in removing subjectivity.
The team also leverages the analysis of sell-side research and expertise from a global research team based in Hong Kong. Meeting with company management is also vital here to gain company-specific and industry information. The strategy holds a well-diversified portfolio with a long-term perspective, helping the fund outperform over the long haul.
ICICI PRUDENTIAL MULTI-ASSET
The fund follows a disciplined investment process and an active portfolio management approach. The equity managers follow an aggressive contrarian strategy and is willing to buy companies that are in the midst of a short-term crisis or transition but remain fundamentally sound. The team continues to dynamically manage the equity and debt portion based on market valuation and maintains the gross equity level of 65%. He uses the counter-cyclical approach to pick sectors that have done badly but have a good long-term outlook.
Sankaran Naren and Ihab Dalwai evaluate sectors from a top-down perspective, favouring those with attractive fundamentals and shifting away from ones where they think valuations are stretched. They study factors such as fiscal policy, current account deficits, inflation, economic growth rate, and government policies to form top-down views. While picking stocks, they use a bottom-up approach, seeking to identify companies with above-average profitability supported by sustainable competitive advantages. The strategy is complex, and the success of the fund depends on skilled execution; on that count, we believe Naren can make the process work.
ICICI PRUDENTIAL DISCOVERY
Sankaran Naren's investment approach entails scouting for stocks he believes are trading at a significant discount to their fair value. He relies on a combination of absolute and relative valuation parameters (such as P/E, P/BV, ROE, and ROCE) for picking stocks. Additionally, he looks for differentiating factors (technological prowess, cost advantage) that can give the company a sustainable edge. With the investment strategy rooted in value bets, the fund's portfolio is significantly distinct from the benchmark index and peers.
Naren is patient with his high-conviction holdings but does not shy away from trimming or exiting stocks if the valuation goes beyond his comfort level. He plies a fluid investment style here. The strategy therefore continues to be flexicap in nature. While currently it predominantly holds large-cap stocks, Naren will not shy away from having relatively higher exposure in mid- and small caps based on valuation. However, with the fund's current size, we would like to see execution on that front before gaining further conviction here.
The strategy is not without risks. It can hold back the fund in rising markets when valuations are stretched and can lead to value traps. Hence, its long-term success in no small measure will depend on the manager's execution capabilities. On that count, we believe Naren is equipped to successfully ply the strategy.
ABSL FRONTLINE EQUITY
Fund Manager Mahesh Patil studies macroeconomic factors such as the domestic interest-rate cycle, government policies, and developments in the global economy to determine the sector overweight/underweight positions. Having said that, a benchmark-aware approach leads to a portfolio that does not reflect significant over\underweights. Patil considers the fund house's investment universe and the IISL Nifty 50 Index when constructing the portfolio.
Typically, he will invest in companies that display strong earnings growth potential, while focusing on parameters such as ROE and ROCE. Patil makes use of relative valuation measures, such as price/ earnings, price/book value, and EV/EBITDA vis-a-vis comparable peers when selecting stocks. The manager isn't valuation-conscious in the strictest sense but, is willing to be flexible if he is convinced of the growth prospects.
Patil has used short-term tactical plays to good effect on several occasions. He is not averse to increasing and reducing his allocation to the same stocks routinely based on price momentum and valuations. This pattern is perceptible in his long-held investments as well. Given that sector weights are aligned loosely to those of the benchmark index, the top-down approach is less significant than the bottom-up approach, but it isn't ignored. In our opinion, the investment strategy is uncomplicated, but it acquires an edge owing to Patil's execution.
MIRAE ASSET TAX SAVER
This strategy is focused on identifying stocks with a GARP framework. The investment philosophy of the fund is built on three core principles: quality businesses with stable earnings, strong management, and attractive valuation. The process includes both quantitative and qualitative stock screening with bottom-up stock[1]picking. The sector selection is done through a top-down approach mainly based on growth prospects. Analysts then assess stocks at the industry and company levels and focus on key drivers such as returns on capital employed, returns on equity, and EBITDA margin. Within the framework, there is a lot of emphasis on qualitative analyses like management quality and execution capabilities. These are quantified by evaluating the trailing 10-year track record, which helps in removing subjectivity.
While selecting mid-cap stocks, the manager typically looks for slightly higher ROE and growth rates as compared with large-cap stocks, given these stocks come with liquidity and other risks. There is a further focus on valuation, which becomes a key driver behind entry and exit timing. This valuation process along with quantitative factors, drive the conviction level in the stock, which helps to exclude companies where business fundamentals are not solid. Meeting with company management is vital here to gain company specific and industry information. The strategy holds a well-diversified portfolio with a long-term perspective, helping the fund outperform over the long haul.
Access fund analyst reports here
