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Morningstar: Mutual Fund Guide

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Morningstar: Mutual Fund Guide
Morningstar India - 26 August 2019


IDFC Dynamic Bond

Investment Strategy

Suyash Choudhary is a competent manager with an overall work experience of over 16 years in portfolio management. He joined IDFC Mutual Fund in October 2010. He is a seasoned manager in managing duration strategies.

Given duration is an integral part of the strategy, studying the macroeconomic scenario for taking interest rate directional view forms the broader framework of the process. The interest-rate direction is determined by conducting a detailed analysis of various influencing factors such as growth versus inflation, fiscal and current account deficit, private sector and government borrowings, fiscal and monetary policy view, money supply, currency market movement, and global interest-rate scenario, among others. This is complemented by an overlay of technical factors where the team examines the demand supply dynamics to get clarity on valuations and direction of yield curve. Subsequently, interest rate direction calls and anticipation of yield-curve movement form the basis of portfolio positioning in duration terms. For corporate bonds, the team lays lot of emphasis on the promoter group, its track record, and corporate-governance standards. Choudhary will not lend to a company facing corporate-governance issues. Additionally, he also looks at companies’ competitive standing with regard to peers, its practices, cash flows, liquidity profile, business and financial risks, among others.

Choudhary constructs the portfolio with an emphasis on safety and liquidity. Thus, taking credit bets is not a part of the strategy, which has enabled him to tide over credit risk more comfortably than most of his peers.

 

ICICI Pru Bluechip

Manager Biography And Fund Strategy

ICICI Prudential Bluechip fund’s numerous strengths continue to shine through despite frequent change in leadership. Anish Tawakley and Rajat Chandak jointly manage this fund. We regard lead manager Tawakley as one of the highest experienced research professionals; he joined the fund house in April 2016 as head of research. The investment team is remarkably large and comprising 14 research analysts and eight portfolio managers.

The portfolio managers ply a benchmark-conscious strategy, and sector weightings are aligned to those of the IISL Nifty 100 Index, subject to a deviation of plus or minus five per cent. Hence, the top-down approach has little relevance. They use the in-house large-cap model portfolio as the initial reference point when choosing stocks. Although the managers also use the firm’s internal fair value approach and the alpha alert, the model portfolio remains the most important part of the security-section process. Within a sector, the managers perform business analysis to identify the best ideas. In addition, they use free cash flow/enterprise value ratio (three-year average) as an appropriate parameter along with price/book return on equity, among others, to determine a company’s fair value. Typically, the fund will invest only in the top 100 stocks by full market cap. The managers have a quality bias when choosing stocks: They favour companies with robust business models, strong entry barriers, and the ability to scale up without eroding profit margins. However, they are not averse to investing in companies that do not fulfill all their qualitative criteria if the stock offers a trade-off against valuations.

This  true-to-label fund maintains about 80-90 per cent of assets in large-caps. Cash levels typically hover below five per cent, in line with the strategy to remain fully invested at all times.

Mirae Asset Emerging Bluechip

Manager Biography And Fund Strategy

This fund is managed by Neelesh Surana, an experienced manager who also heads the equity function as CIO. He is aided by a small but experienced investment team. The manager’s distinctive stock-picking ability and skilled execution are the defining factors of this fund.

The team combines fundamental analysis with quantitative screens, seeking firms with high earnings growth potential, strong balance sheets, and high cash flow. The team also looks for price value gap in stock selection and considers a metrics such as P/E, P/B, and EV/EBITDA. The team further filters and invests in companies that generate EBITDA/cash flows of around 100 crore. It avoids smaller companies as the idea is not to buy in at an early stage but to invest in evolving mid-caps that have the potential to become large caps. While selecting mid cap stocks, the manager typically looks for slightly higher ROE and growth rates as compared with large-cap stocks, given these stocks come with liquidity and other risks. Within the framework a lot of emphasis is on qualitative analysis such as management quality and execution capabilities. These are quantified by evaluating the trailing 10-year record, which helps in removing subjectivity. The team also leverages the analysis of sell-side research and expertise from a global research team based in Hong Kong. Meeting with company management is also vital here to gain company-specific and industry information.

The fund remains fully invested and avoids churning the portfolio often, reflected in the fund’s lower turnover ratio vis-a-vis peers. The lower expense ratio vis-a-vis its peers also makes the fund all the more appealing.

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