Over time, we have built confidence in manager Singh and his investment approach.
When Mrinal Singh took over this fund in Feb 2011, he had built an impressive track record on a technology sector fund. Though he came across as a competent manager even then, his inexperience on diversified funds was a cause for concern. Since then, we have had the opportunity to evaluate the fund over a market phase spanning both a downturn (2011) and an upturn marred by volatility (2012), enabling us to build confidence in both the manager and his approach.
Singh combines absolute and relative valuation parameters to uncover stocks that he believes are trading at a significant discount to their fair value. Beyond valuation, he looks for differentiating factors that can give the company a sustainable edge. His investment in Bharti Airtel in May 2012 typifies the approach; when the telecom major’s price fell in the face of an uncertain policy environment, Singh bet on a combination of attractive valuations and robust fundamentals. During his stint as an analyst, Singh was the investment team’s small/mid-cap specialist. He plays to his strengths here, running a small/mid-cap portfolio. The manager’s willingness to be patient with smaller-cap fare gels well with the valuation-conscious approach.
That being said, the approach can hold back the fund--in rising markets, for instance, when valuations are stretched, the fund may have a hard time competing. Because the strategy focuses on uncovering attractively priced stocks, being ensnared in value traps is a risk. Also, going forward, a growing asset size can pose challenges in the form of market-impact cost, the opportunity cost of having to spread out trades, and liquidity management.
It is evident that over shorter time frames, investors need to be able to ride out bouts of volatility and underperformance. However, for risk-tolerant investors who are willing to be patient and stay invested over a market cycle, the fund can deliver pleasing results. The presence of Singh at the helm aids our confidence. The fund offers enough to earn our Bronze rating.