Reliance Top 200
- Category: Large Cap
- Analyst Rating: Silver
- Investment Style: Large Growth
- Investment Process: Bhan invests in companies that have high/rising ROEs and scalable business models.
- Star Rating: 4 stars
- Fund Manager: Sailesh Raj Bhan
- Morningstar Analyst: Himanshu Srivastava
- Date of Analysis: August 2017
The fund is a predominantly large-cap offering. However, its investment approach allows the manager to invest up to 30% of assets in mid-cap stocks. While the manager stays clear of investing in small-caps, the allocation to midcap stocks has hovered in the range of 10%-20% for a long time now. As of July 2017, large caps accounted for almost 88% of the portfolio.
Bhan is benchmark-aware here, but takes reasonable sector deviations based on his top-down view. He prefers large-cap companies or companies with large-cap capabilities while investing. Hence, he scouts for businesses which are established, have a track record, or have dominance in their area. The companies qualifying this criterion are usually leaders in their respective sectors. The idea here is to contain risk in the portfolio.
Currently, significant portion of the portfolio is biased towards domestic growth recovery as Bhan believes that it is an important theme to capitalise on over the long haul. Having said that, the fund may struggle if this theme doesn’t play out as per Bhan’s expectation; the year 2016 is a case in point. But 2016 did provide him attractive investment opportunities and a chance to rejig the portfolio to make it future ready. While the core structure of the portfolio was not disturbed; the manager bought into NBFCs, healthcare, and insurance companies given their attractive valuations.
From August 2011 (when the new strategy came in effect) through July 2017, the fund has had an impressive showing, outscoring its benchmark index and 86% of category peers. Despite its underperformance in calendar years 2013 and 2016, it boasts an impressive track record over a three-year and five-year period. Over a 3-year period, it clocked an annualised return of 16.1%, outperforming its benchmark index, the S&P BSE 200 (11.7%), and 85% of peers. Similarly, over a 5-year period, it returned 19.8% annualised, beating the benchmark index (15.7%) and 86% of the category peers.
After a difficult 2011, the fund made a comeback in 2012 and had its best year ever in a peer-relative sense, beating 96% of the competition. Bhan's select small/mid-cap bets and investments in benchmark heavyweights (ICICI Bank and HDFC Bank) paid off handsomely.
In 2013, the fund returned 4% and underperformed both the index and the category average. A combination of factors--Bhan’s relatively higher exposure to small/mid-caps, his underweight position in the defensive sectors, and investment in few select stocks--led to the underwhelming result.
While the fund had a good run in 2014 and 2015, it struggled in 2016 as demonetisation and Bhan’s bet on domestic growth didn’t pan out as expected. However, it bounced back this year and has so far (till July 2017) outperformed 89% of competition.
Read the brief analyst note here
Reliance Equity Opportunities
- Category: Flexi Cap
- Analyst Rating: Silver
- Investment Style: Large Growth
- Investment Process: The fund’s free-flowing investment process encompassing multiple aspects is robust
- Star Rating: 3 stars
- Fund Manager: Sailesh Raj Bhan
- Morningstar Analyst: Himanshu Srivastava
- Date of Analysis: August 2017
The fund’s portfolio typifies Sailesh Raj Bhan’s investment approach. He is benchmark-agnostic across sectors and stocks when constructing the portfolio and takes sizable sector bets where his conviction is high. Typically, he uses a macro overlay for scouting sectors. For instance, he continues to position the portfolio to benefit from economic growth recovery. Given his view that the macro conditions are favourable for the general earnings growth to pick up, he has been maintaining significant exposure in domestic themes such as consumption (both urban and rural), corporate banks and hospitality among others.
His focus on emerging themes such as retail, media, insurance, digital TV, and outsourced services remains integral to portfolio construction. These account for roughly 20% of the portfolio.
Bhan is valuation-conscious and since 2011 has either steered clear of or maintained an underweight position in the consumer defensive sector due to valuation concerns. Also, 10% of the portfolio is invested in stocks which are out of favour due to poor market sentiments. This is in line with his strategy of balancing the portfolio’s growth bias with a value tilt. Large- and mid/small-cap stocks account for almost equal exposure in line with the fund’s flexicap nature.
Most of the stocks in the portfolio holds leadership positions in their respective sectors. The cash exposure is capped at 5%.
Under Bhan (April 2005 to July 2017) the fund has had an impressive showing, outscoring its benchmark index (S&P BSE 100) and 75% of its peers from the India flexicap category. The fund delivered a top-quartile performance consecutively for four calendar years until 2012, followed by second-quartile performances in 2013 and 2014. However, the fund struggled in 2015 and 2016 with latter proving to be one of the worst years in the fund’s history.
This is largely because Bhan has been positioning the portfolio for an economic turnaround for a long time now. The delay in the same, coupled with demonetisation last year, resulted in his picks from consumption and corporate bank space performing below expectation and hurting the fund’s overall performance. Consequently, the fund slipped to third and fourth performance quartiles in 2015 and 2016, respectively.
The fund’s recent brush with underperformance has also affected its 3- and 5-year returns relative to peers. For instance, over a 5-year period, it has clocked an annualised return of 18.5%, outperforming the benchmark index (14.8%) but underperforming the category average (19.8%). However, this year (till July 2017), the fund has made a comeback and outperformed the category average and benchmark index. Given the fund’s fluid investment strategy with big sector and thematic play, it courts more risk than the norm.
Read the brief analyst note here
Reliance Vision
- Category: Flexi Cap
- Analyst Rating: Bronze
- Investment Style: Large Growth
- Investment Process: The fund manager looks for companies that he views as attractive growth opportunities at a reasonable price.
- Star Rating: 2 stars
- Fund Manager: Ashwani Kumar
- Morningstar Analyst: Kavitha Krishnan
- Date of Analysis: April 2017
Kumar plies a growth-at-a-reasonable-price strategy. He typically scouts for companies with strong and sustainable business models. He will be flexible with valuations and pay what he thinks is a fair price, given the company’s growth prospects. He tends to take a two- to three-year view on stocks and focuses on factors such as ROE and ROCE when evaluating companies.
The research-orientation and qualitative overlay seeks to identify companies with strong management teams, robust business models, and sustainable competitive advantages. The topdown approach is also important; factors such as the interest-rate scenario, barriers to entry, pricing power, policy measures, and expected consumption/ spending patterns are considered when investing. The process is not without risks, given the manager’s willingness to be benchmark-agnostic and take big stock and sector bets.
Ashwani will tend to buy into stocks based on the "best fit" for his portfolio even if it contradicts the opinions of the internal research team.
Overall, we believe the process is solid. The manager typically aims to invest in differentiated businesses and gain a first-mover advantage in terms of identifying the stock as well as ensuring that he is buying at the right price points.
Large caps stocks currently constitute about 80% of assets, while the top 10 holdings constitute 40%-60% of the total assets. Kumar’s penchant for diverging from benchmark weightings and willingness to take active sector bets results in a portfolio that is significantly distinct from that of its peers.
In addition to remaining concentrated at a sector level, the portfolio also witnessed a significant move away from healthcare and energy into autos and banking in the past two years. This move is in line with the manager’s view that these sectors offer a better risk/return trade-off and will help capitalise on the India growth story.
The fund is typically run as a sector-heavy portfolio consisting of about 30-40 stocks, with a major portion of its AUM invested in three to four meaningful sectors. A typical investment would be a company that operates in diverse areas such as engineering and auto, catering to both domestic and global clients. From a top-down angle, he expects the auto sector to benefit from rising spending power in smaller cities. He expects auto companies to benefit from a robust product portfolio, low-cost models, and extensive distribution.
In rising markets, Kumar may indulge in short-term trades and tactical plays and tends to trade in the same set of stocks to capitalise on short-term opportunities rather than investing in new names.
Read the brief analyst note here
