The AMC differentiates funds based on absolute and relative-return frameworks.
The Bluechip fund is a relative-return strategy focused on incremental fundamental change, positive market expectations, and relative valuations, measured by sales growth, EBITDA margins, and market share changes. They look at companies in terms of their visibility of growth and undertake company visits to evaluate their business models. They have an active universe of stocks that are reviewed on a quarterly basis. The filters for relative and absolute funds are clearly defined, but stocks could fall into either framework, and the differentiation could blur.
The fund has largely kept an orientation towards growth stocks and is focused on long-term (3- to 5-year) visibility. The team tends to avoid momentum-based ideas and focuses on bottom-up stock-picking which overlooks short-term market aberrations. This could lead to some short-term underperformance.
We think their approach towards investing in companies with a high environmental, social, and governance score is a positive measure towards maintaining a “clean” portfolio. The in-house model portfolio forms the basis for stock picks and consists of the analyst team’s best ideas. Valuations are looked at on an absolute basis relative to the stock’s 10-year history. While they avoid event-based investing (possibility of a merger/acquisition, for example), they tend to invest in IPOs.
- Fund: Mirae Asset Large Cap
- Morningstar Analyst: Nehal Meshram
- Morningstar Star Rating: 5 stars
- Morningstar Analyst Rating: Silver
- Date of Analysis: September 2019
- Fund Manager: Gaurav Misra
- Performance
- Portfolio
- Factsheet
- Brief Analyst Note
The fund was recategorised as a large-cap offering since May 2019. However, the change is not a concern given the fund’s historical large-cap tilt with a focus on high growth companies at reasonable prices. 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-picking. The sector selection is done through 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, a lot of emphasis is on qualitative analysis like management quality and execution capabilities. These are quantified by evaluating the trailing 10-year track record, which helps in removing subjectivity.
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 and expensive stocks. 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 long-haul performance.
- Fund: UTI Mastershare Unit
- Morningstar Analyst: Nehal Meshram
- Morningstar Star Rating: 3 stars
- Morningstar Analyst Rating: Bronze
- Date of Analysis: June 2019
- Fund Manager: Swati Kulkarni
- Performance
- Portfolio
- Factsheet
- Brief Analyst Note
UTI Mastershare Unit is a largecap-focused fund with a growth style. Swati Kulkarni invests predominantly in reasonably priced leading businesses of large caps from the benchmark index, the BSE 100. The process is methodical and cohesive. The fund takes a top-down approach for sector weights and uses a bottom-up view for stock selection.
The initial investment process is to determine which companies have generated higher operating profits and demonstrated long-term return on equity. The team emphasises the trends and patterns discerned from historical performance rather than from the forecasts. From a qualitative aspect, the focus is on strong management, the company’s business model, and competitive advantages. The investment team meets regularly to discuss and narrow the investing field. They are currently tracking around 320 stocks.
Kulkarni relies on relative valuations for evaluating stocks, deploying measures such as price/earnings, price/book value, and EV/EBITDA, though she also invests in stocks that she considers to be fairly valued if she is convinced about their earnings growth or in her quest for a quality business. She does not drastically move away from the benchmark and at the same time also takes active calls on benchmarks, sectors, and stocks. The investment strategy is uncomplicated, but Kulkarni’s execution, especially in the testing markets of 2011, 2015, and 2018 has been noteworthy.
The process is solid with research at its core. Prashant Jain adopts a hands-on approach to research to ferret out quality companies with robust business models, clean balance sheets, and competitive strengths. He adopts a research-intensive approach to get an in-depth understanding of the business. Although the bottom-up style is clearly integral to Jain’s investment style, the top-down isn’t ignored either.
Hence, the style can be described as a mix of top-down and bottom-up, with the latter being a tad more important. Both relative and absolute valuation methods are used to pick stocks. For this fund, Jain is clearly mindful of the benchmark index IISL Nifty 100 as he targets having "matched stock positions" of at least 60%. Still, he doesn’t shy away from taking underweight/overweight positions at sector level when he spots opportunities.
Analysts rate stocks from their sectors based on their estimates of intrinsic value. A history of ratings is maintained with the reasons for changing ratings. This helps in introspection and constant evaluation of the process. Recommendations are made with a two- to three-year horizon, but it isn’t uncommon for stocks to feature in the portfolio for significantly longer periods. The investment style can be described broadly as growth at a reasonable price. We think the process is strong and Jain’s execution has been skillful.
- Fund: Kotak Bluechip
- Morningstar Analyst: Kavitha Krishnan
- Morningstar Star Rating: 3 stars
- Morningstar Analyst Rating: Neutral
- Date of Analysis: March 2019
- Fund Manager: Harish Krishnan
- Performance
- Portfolio
- Factsheet
- Brief Analyst Note
Harish Krishnan’s growth-at-a reasonable-price strategy uses the model portfolio created by the analyst team as his initial reference when picking stocks. The model portfolio is compiled from sector-based portfolios prepared by analysts, who use a combination of quantitative models using relevant ratios such as price/book value, P/E, enterprise value/EBITDA, and other valuation methodologies like replacement costs and discount cash flow models to evaluate stocks. He applies a qualitative overlay on that, investing in the top companies in each sector that have sustainable and scalable businesses, good management capabilities, and trade at reasonable valuations.
He combines the top-down and bottom-up approaches to determine underweight/overweight stock and sector positions vis-a-vis the benchmark index and for selecting non-benchmark stocks.
Krishnan maintains a core portfolio (70%-80% of assets), with holdings largely from the benchmark; the rest is used for tactical plays, making the portfolio predominantly aligned to the benchmark. Significant stock overlaps with the benchmark make sector bets the primary source for alpha, which is in line with his strategy to generate performance through concentrated sector bets. However, firmwide portfolio constraints (for sector exposures) may limit the strategy's potential.
He avoids making short-term calls/cash calls, with an average holding period of 24-36 months.
- Fund: ABSL Frontline Equity
- Morningstar Analyst: Kavitha Krishnan
- Morningstar Star Rating: 3 stars
- Morningstar Analyst Rating: Gold
- Date of Analysis: March 2019
- Fund Manager: Mahesh Patil
- Performance
- Portfolio
- Factsheet
- Brief Analyst Note
Mahesh 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 P/E, price/book value, and EV/EBITDA vis-a-vis comparable peers when selecting stocks. That said, he isn’t valuation-conscious in the strictest sense.
Although he looks at valuations closely, Patil 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. 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. In our opinion, the investment strategy is uncomplicated but it acquires an edge due to Patil’s execution.
- Fund: DSP Top 100 Equity Fund
- Morningstar Analyst: Himanshu Srivastava
- Morningstar Star Rating: 2 stars
- Morningstar Analyst Rating: Neutral
- Date of Analysis: March 2019
- Fund Manager: Gopal Agrawal
- Performance
- Portfolio
- Factsheet
- Brief Analyst Note
The fund’s investment mandate has stayed consistent despite manager changes.
However, its erstwhile managers had different investment styles. Apoorva Shah used to combine his in-depth understanding of companies with factors like market sentiment, news flow, and momentum while making investments, resulting in high portfolio turnover. Harish Zaveri on the other hand plied a typical growth-oriented investment style and preferred a buy and hold approach to investing.
Gopal Agrawal’s investment style is different from his predecessors. Unlike Zaveri, he is valuation conscious, which is one of the primary criteria for stock selection. Hence, he evaluates a company on parameters such as EV/EBITDA, PEG ratio, and replacement cost among others before investing. Although he broadly prefers a buy-and-hold approach, he tries to allocate 10% of the portfolio for tactical opportunities. This in line with his belief that some tactical allocation is required to help the fund clock incremental alpha within the category, which otherwise has a rather uniform and standard investment mandate.
Historically, it had 95% of assets consistently invested in large-cap stocks. But, given an opportunity, Agrawal won’t shy from investing 10%-15% of assets in mid/small-cap stocks.
Broadly, the process is simple, straightforward, and not distinctive in nature. So, success would depend on Agrawal’s execution capabilities.
