Sundaram Asset Management is amongst the larger asset managers in the country. The company manages assets worth Rs 312 billion (as of the quarter ended June 2019). Here’s our analysis of the three equity funds from the Sundaram Mutual Fund stable.
Sundaram Mid Cap Growth
- Analyst Rating: Bronze
- Date of Analysis: September, 2019
- Analyst: Kavitha Krishnan
- Fund Manager: S Krishnakumar
Krishna Kumar (CIO of equities) has been managing this fund since 2012. We think he is a proficient manager in the small-and mid-cap space and invests in fundamentally sound stocks with positive growth prospects, good pricing power, and stable cash flows. He is valuation-conscious while investing but is willing to remain invested in companies with higher valuations if longer-term growth prospects appear favorable.
The investment style is essentially bottom-up with a buy-and-hold philosophy on high conviction names. Krishna Kumar’s in-depth understanding of companies and background in researching small- and mid-cap stocks is an advantage. He typically seeks to invest in quality companies with differentiated businesses.
We think that Krishna Kumar’s presence of is a comforting factor. The investment team at the AMC is well experienced, with managers being able to play to their individual strengths. Having said that, the team has undergone constant changes over the past two years. They undertook a restructuring exercise two years ago, with managers assigned roles that reflect their areas of strength. Since then, they have witnessed a few departures, both from the portfolio management as well as the analyst teams. These positions have been filled with experienced managers/analysts and the team seems to be stabilising. We would like to evaluate the impact of the changes across market cycles before we build more conviction on the team. On an overall basis, we reiterate a Morningstar Analyst Rating of Bronze.
Sundaram Diversified Equity Fund Growth
- Analyst Rating: Neutral
- Date of Analysis: September 2019
- Analyst: Kavitha Krishnan
- Fund Manager: S Krishnakumar, Dwijendra Srivastava and Rohit Seksaria
The investment team for this fund has undergone many changes over the recent past. They undertook a restructuring exercise two years ago, with managers being assigned roles that reflect their areas of strength. Since then, they have witnessed a few movements both on the investment and the analyst teams. These positions have been filled with experienced managers/analysts, and the fund house is well on its way to building a strong and stable team in place.
The fund’s investment strategy has remained consistent and allows the manager flexibility to move across market capitalisations. The fund’s exposure to mid-cap stocks in the portfolio typically ranges between 35% and 50% and is based on the availability of investment avenues. Though the fund is fairly diversified, the manager can deviate significantly from the benchmark, resulting in a portfolio that is markedly different from its index. We think that Krishnakumar’s capabilities as an efficient stock-picker are reflected in this strategy.
The fund's long-term performance has remained average. The fund took a beating in 2018 owing to multiple factors, including the market downturn and certain stocks/sectors not doing as well as the manager expected. We have a positive view on Krishnakumar’s capabilities and think that he is an above-average manager. Having said that, we would like to see the execution translate into a better long-term performance on the fund. We would also like to evaluate the fund under its new comanager and monitor how responsibilities are divided across the two managers. Based on these factors, we maintain a Morningstar Analyst Rating of Neutral for now.
Sundaram Select Focus Fund Growth
- Analyst Rating: Neutral
- Date of Analysis: September 2019
- Analyst: Kavitha Krishnan
- Fund Manager: Rahul Baijal
Rahul Baijal took over the management of this fund in 2016 and has been able to execute the strategy with a lot of success. Having said that, this is his first stint at managing a mutual fund and we think it’s important to look at a long-term track record on the fund. Fairly high expenses also restrict our conviction here.
Launched in July 2002, Sundaram Select Focus was an aggressively run large-cap fund composed of roughly 30 stocks representing the manager’s highest-conviction picks based on three or four themes. In September 2010, the strategy was modified to reflect a diffused portfolio of up to 50 stocks, with sector weights broadly in line with the index. An improved economic environment led to a slight cut in the number of stocks, with the fund running a relatively concentrated portfolio in 2016. The fund’s mandate underwent a slight change in 2018 and was categorized as a 30-stock concentrated portfolio with a focus on investing in large-cap stocks.
Despite the fund’s impressive showing under Baijal, we would like to see a stable, long term track record on this fund, both on the People and Performance fronts. Moreover, higher expenses on the fund can be a drag to the end investor. Based on these factors, we think it prudent to maintain a Morningstar Analyst Rating of Neutral on this fund for now.
