In the start let me clarify – I am not going to point to individuals as MF space is highly decentralized and when we say we are evaluating Investment Styles of Indian Mutual Fund Managers – We mean to say the team behind a particular fund or fund house.
We know from my last post that – Past performance is just the tip of the iceberg – A consistent and transparent portfolio management approach contributes to sustainable long-term returns. And when it comes to Indian Mutual Fund Managers – they are the key drivers.
As investors and advisors, we tend to get swayed by the recent past performance while making our investment decisions and overlook the underlying philosophy and process which would contribute towards the future returns.
Moreover, history suggests that the process for selecting funds only on the basis of past performance may not be a full-proof procedure in the future. Thus, we believe that in generating sustainable long-term performance, skill plays a major role rather than luck, and to assess the skills of a fund manager, it becomes pertinent to understand the consistency in their fund management approach.
Like any sportsman who demonstrates their styles in different terrains, we are of the view that every manager has a different style and approach for stock picking and portfolio construction.
Through our detailed due diligence process, we aim to understand the capabilities, consistency, and experience of the Fund manager and substantiate their investment style with their past and current investments.
The 2 Visible Indian Mutual Fund Managers Styles
The investment style oscillates between two extremes of investing i.e. Mean Reversion and Earnings Momentum while the other blended styles of investment like Value, Blended, and Growth lie in between the two extremes.
When a manager sticks to picking stocks that are out of favor or below their average valuations and expects these stocks to revert back, then these managers are demonstrating a mean reversion investment style. For example, ICICI Fund Managers (lead by Mr Shankar Naren) are known for their value style of investing.
On the other hand, if the manager foresees sustainable growth in the earnings of a company and is ready to pay a premium for the stock, then the fund manager belongs to the growth style of investing. For example, Motilal Oswal Fund Managers believe in ‘QGLP’ and exhibit earnings momentum investment style.
When you look at pure value investing – the only name that comes to mind is HDFC Mutual Fund & a team lead by Mr. Prashant Jain. He has taken calls for 2-3 years in a world where we have monthly con calls, yearly/quarterly dissection of performance and industry which is led by distributors like individuals, & banks.
Another rock-solid team is of SBI Mutual Fund. They also have very strict internal processes and it helps when there is a time of turmoil.
Other good (consistent) managements are Kotak MF (Nilesh Shah, Harsha & Pankaj Tiberewal) & Mirae Assets Team.
We also track some very good individual performance from– Jinesh Gopani (Axis MF), Vinay Paharia (Union MF), Rajeev Thakkar (PPFAS), Canara Robeco Team lead by Mr Nimesh Chandan, UTI AMC & PGIM Fund Management Team are very fast catching up.
In an investment world where more choices may lead to more confusion, it is important to understand the style of the Fund Manager rather than the standalone performance of the funds.
Other factors besides just performance:
Also, since different managers exhibit their strengths in different market conditions, it is viable to construct a portfolio with an appropriate combination of investment styles which in turn would minimize duplication and over-diversification.
Communication
There is a difference between “Organizational Views” & “Personal Views”.
Most of the calls, monthly commentaries, or even newspaper interviews are compliance approved and hence speak non-directional, coveted meaning words with no absolute strategy.
The best way is to see the portfolio. “It is easy to say a lie than to act on a lie”. Most fund managers have their own personal skills. They may speak the organizational language but most act per their own thinking & learnings when it comes to making decisions on funds they manage.
Also, in some organizations, if you check most fund-related comments or information is provided by Sales Head or person related to business development. For eg currently, DSP MF & Mirae MF follow this strategy. So when you are analyzing the performance of such a fund, the commentary by the sales team has no relevance.
Enough pointers today… See you soon. Do let me know what you think in the comments section below.
The Indian Mutual Fund Investment managers are quite smart when it comes to investing the money and providing the best possible returns to the investors. Another point to be noted is that invest keep in mind a long term plan for better gains.