Here is a story of one fund which bucked this trend - and has delivered significant alpha in a flat market. It was launched in March 2008 - just before mayhem hit the markets - and in what has been one of the most difficult periods for equity investing, has done a commendable job of actually delivering wealth creation over the last 4 + years of its existence. And, in its performance, lies an important story - about what really helps a fund manager deliver alpha even in tough times.
Here is what Kenneth Andrade, CIO of IDFC Mutual Fund has to say on this
key issue :
The investor today has this question: Which fund
to buy Large Cap vs. Mid cap, and are midcaps such a relevant play in the entire
environment, if the large caps tend to remain sticky?
Our answer to it has been that whenever we have
put a portfolio together, our starting line has always been "good businesses and
good visibility".
Since 2008 there has been a fairly good cycle of
market trenching into 2009, and post that moving up. Our Sterling Equity Fund
has been around since the beginning of 2008. It's been through a cycle where
valuations were extremely cheap, moved into a cycle where markets went flat and
then moved to a cycle where some part of the markets have got very expensive and
that essentially is the scenario we have been in, 2008 and till date markets
have been virtually flat, 2008 we launched Sterling Equity at a 17k index and
the market is still hovering a little below that no, though the fund has
generated significant alpha. And in that entire context there has been a huge
reshuffling of the environment around us, we moved away from the investment
economy, we became a pretty large consumer economy. We moved from distressed
corporate balance sheets to stressed balance sheets and we have got into a very
interesting cycle of how consumer leverage has started to pick up. In context of
that over the next couple of years we will see consumer leverage being one of
the key driver to where the environment will essentially lead and consumers or
any part of the market which will receive significant amount of money from the
system will continue to tier upwards in terms of growth and that should reflect
in the underlying market cap.
Sterling's positioning essentially is that we try
to buy growth businesses in the mid cap space. The fund actively builds a
portfolio of companies with proven business model. The focus is on identifying
structural changes in the environment and align companies based on how their
valuations stack up within their respective industries.
We try to buy good businesses. The way to
effectively do that is to make sure that the companies we are buying are not
financially leveraged. The underlying portfolio will be completely diversified,
we have our fair share of every other business that forms part of the benchmark
index. And we would like to participate over the next cycle.
So we are not really looking at, where in the
entire system the environment is placed or whether the FIIs are putting money in
the system or not. If the company grows profitability it will attract its entire
market and capital into it all. That's the space we operate in, and that's how
we would like to grow the entire opportunity. "
Source of this interview: Wealthforumezine
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