A look at 8 tax-saving funds

By Morningstar Analysts |  07-02-19

L&T Tax Advantage

(click on the above to access the brief analyst note)

  • Star Rating: 4 stars
  • Analyst Rating: Bronze
  • Fund Manager: S N Lahiri

Soumendra Nath Lahiri follows a bottom-up, benchmark-agnostic investment approach focused on investing in companies that are efficient allocators of capital. Thus return on capital employed is one of the critical parameters used for evaluation. The manager focuses on the profitability and attractiveness of a business, competitive position within its industry, and stage in the business cycle.

Lahiri considers discount cash flow valuations along with price/earnings, enterprise value/EBITDA, and price/book value as key parameters to look at while evaluating stocks, and considers relative valuations within the industry to find the companies in which he wants to invest.

Analysts track a core list of about 300 companies that are evaluated on the basis of business, management, and valuations. The analysts derive price targets for the stocks and also run sector-neutral portfolios for the sectors, which serve as guides to the fund manager while investing.

A benchmark-agnostic approach may result in large overweight or underweight positions relative to the benchmark, though a risk-management function plays a critical role in highlighting key portfolio risks. The process is sound and the execution has been good, thus producing pleasing results for investors so far.

Lahiri prefers to invest in good businesses at reasonable valuations or firms with improving fundamentals. While there is a focus on bottom-up stock selection, a top-down overlay is exhibited by the fund’s overweight position in industrials and consumer cyclicals based on their expectations of an improvement in economic growth.

The fund typically holds about 55-65 stocks with the top-10 holdings currently constituting about 32% of the portfolio. The allocation across market capitalisation can change significantly depending on the performance of companies.

Exposure to a single stock is generally maintained below 6% of the portfolio to manage portfolio risk.

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