Indian equity markets are going though intense volatility; however, funds with a ‘focused’ strategy have fared better than pure diversified equity funds. Apart from focused funds, even value funds have delivered better returns as markets moved sideways.
In the last one year, funds like Motilal Oswal MOSt Focused Midcap 30 and Motilal Oswal MOSt Focused Multicap 35 have given returns of 24.70% and 23.59% in the last one year. Other funds like Birla Sun Life Special Situations Fund and PPFAS Long Term Value Fund has given return of 13.47% and 13.33%, respectively, in the last one year. On the other hand, broader indices have given negative returns in the range of 6-7 % in the last one year. Market participants say that both focused and value strategies need superior stock selection to deliver strong returns. “In such funds, the portfolio consists of limited stock and if the call goes wrong, returns will take a huge beating. In the past also we have seen that such kind of strategies work best during the uneven market conditions,” said a fund manager from a leading fund house.
In focused funds, fund managers typically invest in concentrated portfolios of equity of up to 25-30 companies with superior growth potential across all market capitalisation and sectors. The main objectives of such funds is to identify businesses with superior growth prospects and strong management, available at reasonable valuation. Many funds also adopt a mix of the bottom-up approach (for stock selection) and the top-down approach (for sector allocation).
Taher Badshah, senior vice-president and co-head of equities at Motilal Oswal AMC, says, “We have always believe in focused strategy. As an investment process, we follow (QGLP), which essentially means that quality of business, growth in earnings, longevity of competitive advantage and last is price, where we buy good business for fair price. For us, this strategy has worked across the market cycle.”
Though such ‘concentrated’ strategies works effectively during the volatile phase, fund managers believe that this kind of strategy also helps deliver better returns during a bull market. “In 2014, many funds delivered huge returns but in the last few months, they are lagging in their performance, largely due to the poor stock selection. But we always invest in high-quality companies that can generate superior returns over the longer time frame in both bull as well as bear markets,” said the CEO of a top fund house.
* As Indian equity markets go though intense volatility, funds with a focused strategy have fared better than pure diversified equity funds
* In focused funds, fund managers typically invest in concentrated portfolios of equity of up to 25-30 companies with superior growth potential across all market capitalisation and sectors
* Value funds have also delivered better returns as markets moved sideways
* Market participants say that both focused and value strategies need superior stock selection to deliver strong returns