Fo­cus is on funds, not their man­agers

The Pak Banker - - OPINION - Kayezad E. Ada­ja­nia

THE past four-year pe­riod has been an un­usual one. In the cal­en­dar years 2012 to 2015, the S&P BSE Sen­sex first went up by 25% in 2012, then by just 9% (2013), then went up again by 30% (2014) and in 2015, fell by about 5%. It wrecked havoc on many mu­tual fund (MF) schemes and on those fund man­agers who thought the econ­omy would wit­ness a turn­around af­ter the Naren­dra Modi-led Na­tional Demo­cratic Al­liance swept elec­tions in May 2014 and formed the govern­ment at the Cen­tre.

How­ever, by and large the Mint50 bas­ket has done well ir­re­spec­tive of mar­ket move­ment. At the end of the past three cal­en­der years, at least 80% of Mint50 schemes have out­per­formed their cat­e­gory av­er­ages over five-year pe­ri­ods. The quest is to get this per­cent­age higher. Mint50 turned six in 2016, and over the years we have made two sub­tle changes to our pol­icy of se­lect­ing schemes.

First, we will no longer re­move a scheme just be­cause its fund man­ager has left. For in­stance, Anoop Bhaskar, who was head of equity funds at UTI As­set Man­age­ment Co. Ltd, is now head­ing IDFC As­set Man­age­ment Co. Ltd's equity funds divi­sion. Two of Bhaskar's schemes, UTI Equity Fund and UTI Op­por­tu­ni­ties Fund, both of which are in the Mint50 list, have not been do­ing so well of late. But he has left his big­gest stamp on UTI Mid­cap; a scheme that we in­cluded in Mint50 just a year ago. True to his style, Bhaskar has kept some 100 stocks in the port­fo­lio, up from about 62 at the start of 2014.

But it's hard to imag­ine a fund house as es­tab­lished as UTI AMC crum­bling just be­cause one fund man­ager leaves. Peo­ple are im­por­tant, but most strong fund houses come with pro­cesses too. Also, a fund house like UTI should be able to at­tract a good re­place­ment.

Se­cond, from now on we will pre­fer funds that don't take cash calls. There was a time when that was work­able and when funds such as Quan­tum As­set Man­age­ment Co. Pvt. Ltd de­fied con­ven­tion and set shop in 2006, we thought it was a good va­ri­ety. It worked for a while, but Quan­tum Long Term Equity Fund's (QLTEF) cash lev­els were too high for our com­fort for a long time and it ap­pears to have hur­riedly de­ployed much of it back into eq­ui­ties in the middle of last year de­spite mar­kets con­tin­u­ing to fall till as late as early Jan­uary 2016. Rea­son­able cash calls are ac­cept­able, but we feel that there are more com­pelling cases than QLTEF at the mo­ment.

The past two-three years have been tricky as the eco­nomic turn­around has been slow, pol­i­cy­mak­ing hasn't lived up to ex­pec­ta­tions just yet (at least in the pub­lic do­main, even if ef­forts are said to have been go­ing on in many quar­ters) and com­pa­nies have re­ported dis­mal rev­enues, quar­ter af­ter quar­ter.

Fund man­agers such as Prashant Jain of HDFC As­set Man­age­ment Co. Ltd, who have been bank­ing on bet­ter con­di­tions, have been caught be­tween a rock and a hard place as the stocks and sec­tors that they have bought aren't show­ing much signs of im­prove­ment. The bank­ing sec­tore­spe­cially the govern­ment-owned banks, led by the coun­try's largest len­der, State Bank of In­dia-are still bur­dened by ris­ing non-per­form­ing as­sets and mar­kets are look­ing for signs of im­prove­ment be­fore they throw their weight be­hind the sec­tor. And now, hav­ing bought th­ese stocks and suf­fered for more than a year or two, some of the fund man­agers don't seem to want to sell such stocks only to be caught off guard; what if the stocks turn­around af­ter they sell?

Some fi­nan­cial ad­vis­ers I have been speak­ing to have asked their in­vestors to exit Jain's schemes. They are re­luc­tant to let their in­vestors suf­fer for what they call, the cost of Jain's con­vic­tion or pride. Year 2016 will be a lit­mus test for Jain since his equity schemes have been in the bot­tom quin­tiles in three of the past five cal­en­dar years. So, what about Mint50? We con­tinue to hold on to his schemes for now be­cause Mint50 is not a port­fo­lio for any spe­cific reader; it is a bas­ket of schemes that aims to give a choice and from where read­ers can pick and choose.

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