Investment Outlook , Published Jan 18, 2018
Our expectation last year that 2017 will have
wider performance dispersion amongst funds,
proved to be accurate. As markets marched on
ahead of earnings, valuation caused
discomfort amongst value conscious fund
managers. Ballooning fund sizes did not help
either. Consequently, we saw half our large-cap
fund universe underperforming the index.
As SEBI tries to bring uniformity in how funds are
categorized, the dispersion should reduce, but
the margin of outperformance over the index
may also reduce. Going forward, time horizon
and patience will be key to generating returns –
of course, the seat belt needs to be tightened
too, as there will be volatility along the way.
Our routes-to-market recommendations this
year, represent a core allocation idea i.e.
Sanctum Indian Titans (Discretionary Portfolio
Strategy) and two tactical, out-of-the-box
ideas, from the mutual fund space viz. Invesco
Contra Fund and L&T Business Cycle Funds.
When one evaluates out-of-the-box ideas it is
important to set aside past performance and
take a forward-looking view instead, which is
what we are attempting to do this year.
Sanctum Indian Titans
As a route-to-market, we continue to
recommend an allocation for this strategy
managed by Sanctum as a part of the core portfolio. The strategy predominantly invests
in companies with proven growth record that
will continue to benefit from the structural
growth drivers. A complementing albeit smaller
allocation is made to emerging growth stories.
The strategy, since the launch of our portfolio
management services, has delivered a robust
performance and makes a case for a long-term
allocation in the client’s core portfolios.
For tactical allocation this year we make a
case for two under-rated funds. The common
thread that we have run through the
Investment Outlook hitherto is to look beyond
past performance and focus on hypotheses of
the funds, their relevance to the current
market environment and their manager
selection. Our experience shows that this
method has thus far held us in good stead.
Invesco India Contra Fund
This multi-cap fund has a value bias and
invests predominantly in companies that are
trading below their fundamental value. It also
carries allocation to cyclicals and some
companies in a turnaround phase. The fund
then intends to hold these stocks until the
hypothesis plays out.
L&T Business Cycles Fund
In line with the name of the fund, the manager
tends to invest in cyclicals when the economy
is in the recovery or growth phases and switch
to defensives during an economic slowdown.
While the sectoral allocation is linked to the
economic cycle, the manager then selects
stocks on a bottom-up basis. With the current
pro-cycle approach, we believe the fund is well
positioned to deliver alpha to investors over
the next 3-5 years.
Investment Outlook 2018