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Motilal Oswal MOSt Focused 25 Fund: A Disciplined Style of Investing
April 18, 2013

This is a brief write up on the NFO, which is to be launched on April 22, 2013.


Author : Dr. Renu Pothen



 Motilal Oswal MOSt Focused 25 Fund

We are in a market where every other day there is one or the other negative news adding to the mayhem on Dalal Street. The macroeconomic front has not been in good shape for some time now and to add to this, the political uncertainty is creating nightmares for Foreign Institutional Investors (FIIs) who are actually selling off, contrary to last year when they brought $24.4 billion into Indian equities. However, whoever thought that this is going to be the mood of the market from hereon has again got it wrong. In the last few days there seems to be cheer on D-Street with some of our economic data points entering a downward trajectory, such as oil and gold prices and the stubborn Wholesale Price Index (WPI) moving in the southward direction after 40 months. This is giving us confidence that team Subbarao will now at least start cutting the policy rates without being too pessimistic in their outlook for the future. In addition to this, declining commodity prices will improve our twin deficits which should be a source of comfort to our Central Bank. To add to these positive sentiments, although the results season started on a negative note with Infosys disappointing the street, the positive numbers from Reliance Industries, TCS etc means that all is not lost for India Inc. In such a conflicting environment, investors are obviously wondering if they should book whatever little profits made or stay immune to all these negative sentiments and let their surplus grow in this volatile phase in the hands of their expert fund managers.


In this context we would like to inform our investors that Motilal Oswal Asset Management Company (AMC) is launching their first actively managed fund i.e. Motilal Oswal MOSt Focused 25 Fund. A relatively new player in the mutual fund industry, this fund house has tried to distinguish itself from its peers by launching innovative products like Motilal Oswal MOSt Shares M50, Motilal Oswal MOSt Shares Midcap 100, Motilal Oswal MOSt Shares NASDAQ 100, Motilal Oswal MOSt Gold Shares and Motilal Oswal MOSt 10 Year Gilt Fund. The fund house which currently manages Assets under Management (AUM) of around INR 465 crore also has an active Portfolio Management Services (PMS) desk with a corpus of INR 1260 crore as on March 31, 2013. Generally, when a maiden NFO is launched by an AMC, it lacks a track record and investors prefer to wait and watch for a coherent investment philosophy to emerge. Here, Motilal Oswal AMC has an advantage because of its lineage of group experience in equity research and advisory, wealth creation studies and PMS offerings.

Investment Philosophy and Strategy

The mandate of Motilal Oswal MOSt Focused 25 Fund is to invest in 25 select companies with long-term sustainable competitive advantage and growth potential. The fund will allocate around 75%-100% of the corpus into the top 200 companies by market capitalization while a 0-25% exposure can be taken into companies beyond the top 200 by market capitalization. The investment universe can include only companies with a market capitalization of more than INR 1,400 crore. We had a discussion with the fund manager, Taher Badshah to understand the strategies that he will be following in this fund. Badshah started his conversation by touching upon the three filters that this fund will implement which will determine the companies that will finally constitute this portfolio.

Key Filters of Motilal Oswal MOSt Focused 25 Fund

  • Quality Growth Longevity (QGL)

Here the focus will be on companies with economic moat which in turn will ensure quality and longevity. The term ‘economic moat’ was first coined by Warren Buffet and it refers to the competitive advantage that the company has over its peers, which will lead to a higher market share that cannot be replicated. The competitive advantage can be in terms of pricing power, brands, superior technology, entry barriers, etc. Some of the companies that fall into this category are SBI, HDFC Bank (Banking), ITC, Hindustan Unilever (FMCG), Infosys, Wipro and TCS (Infotech). To substantiate the importance of companies having economic moat, Badshah also introduced us to a study titled “Economic Moat: Fountainhead of Wealth Creation” which was done by Motilal Oswal under the guidance of Ramdeo Agrawal (Chairman – Motilal Oswal Asset Management Company), the stock market stalwart who is a household name when it comes to equity investing in India. A glance through this detailed report takes us to an interesting part of the study wherein the Motilal team backtested the Economic Moat Companies (EMCs) hypothesis on Nifty stocks, the results of which are worth sharing with our investors. The universe considered here was the stocks which comprised the Nifty in 2002, out of which 38 of them were similar to the 177 companies identified in the economic moat universe. Out of these 38 companies, 29 of them turned out to be EMCs, while the rest of them fell into the category of non-EMCs. The study concluded that during the period 2003-12, the EMCS delivered a CAGR of 22% vs.16% for non-EMCs and the overall return was 20%.

  • Buy and Hold Strategy

This strategy can be easily depicted by a chart wherein we have taken the daily prices of 3 companies - Nestle, SBI and Hero Motocorp, along with Nifty for a 10-year time horizon. For an easy comparison, we have taken the base value as 100.

Chart 1: Example of buy and hold strategy

MOSt 25

 

Stocks

Invested Value

(April 16, 2003)

Current Value

(April 15, 2013)

CAGR (%)
Nestle 100 853 23.91
SBI 100 783 22.85
Hero Motocorp 100 740 22.16
Nifty 100 581 19.24
  • Focused, High Conviction Portfolio Construct

The fund will be a concentrated portfolio of around 25 stocks and the minimum exposure that a stock will have in the portfolio will be to the tune of around 2.5%. The fund will follow the bottom-up-stock picking style of investing wherein the stocks trading below their intrinsic value will be identified as this will provide a sufficient margin of safety. This does not mean that the fund manager will pick up any stock that is available at dirt cheap prices but instead will scout for fundamentally strong companies which possess the economic moat attribute and are undervalued.

Track Record of the Fund Manager
Motilal Oswal MOSt Focused 25 Fund will be managed by Taher Badshah, an experienced hand who has been in the industry for around 18 years with the initial 10 years of his career spent on the sell-side equity research while the rest was on the active fund management side. Badshah is the Senior Vice President and Co-Head of Equities and has been leading the active equity investment team since the launch of the fund house. This fund will be the first from Badshah’s desk in his capacity as fund manager and hence we will be keeping a close track to see if he is able to able to walk the talk as has been proved in his earlier stints.


Peer Group Comparison

Motilal Oswal MOSt Focused 25 Fund has two peers in the industry that is DSP BlackRock Focus 25 Fund launched on June 10, 2010 Fund and Axis Focused 25 Fund, whose inception date is June 29, 2012.Both these funds have a clear mandate that their investment universe will be around 25 stocks and they will be largely concentrated in the top 200 companies by market capitalization. As on end of March 2013, their combined corpus stands at INR 438 crore. Both the funds are definitely in the large-cap space, while Motilal Oswal MOSt Focused 25 Fund is being positioned as a multi-cap fund.


Why we like Motilal Oswal MOSt Focused 25 Fund
We at Fundsupermart.com have always been advising our investors to take an exposure into the Indian markets despite all the negative vibes that have been surrounding it. Our biggest mantra to our investors has been that despite all the volatility, valuations are looking attractive and this definitely should be used to park surplus in the markets for the creation of long-term wealth. We are of the view that this fund will be a good bet in this volatile market considering the fact that a concentrated portfolio with a buy-and-hold strategy will definitely create wealth for investors in the long term. The expertise of the fund management team in running a successful PMS desk along with their investment strategy of looking at EMCs gives us all the more confidence in recommending this fund to our investors. Hence, our conviction stems from this being a fund house belonging to a stable having a disciplined style of investment that has evolved over a period of 25 years. It will only help our investors experience for themselves the advantages of holding onto their investments for the long term without fearing short-term blips.

Details of Motilal Oswal MOSt Focused 25 Fund

Nature of Fund

Open Ended Scheme, Equity : Multi Cap

NFO Opens on

22nd April 2013

NFO Closes on

6th May 2013

Minimum Investment Amt

Rs. 10,000

Benchmark

CNX Nifty Index

Fund Manager

Taher Badshah

Entry Load

NIL

Exit Load NIL

 

To invest into this fund, click here

 

Disclaimer: iFAST and/or its content and research team’s licensed representatives may own or have positions in the mutual funds of any of the Asset Management Company mentioned or referred to in the article, and may from time to time add or dispose of, or be materially interested in any such. This article is not to be construed as an offer or solicitation for the subscription, purchase or sale of any mutual fund. No investment decision should be taken without first viewing a mutual fund's scheme information document including statement of additional information. Any advice herein is made on a general basis and does not take into account the specific investment objectives of the specific person or group of persons. Investors should seek for professional investment, tax, and legal advice before making an investment or any other decision. Past performance and any forecast is not necessarily indicative of the future or likely performance of the mutual fund. The value of mutual funds and the income from them may fall as well as rise. Opinions expressed herein are subject to change without notice. Please read our disclaimer on the website.Please read our disclaimer in the website. Risk Factors: Mutual funds, like securities investments, are subject to market risks and there is no guarantee against loss in the Scheme or that the Scheme’s objectives will be achieved. As with any investment in securities, the NAV of the Units issued under the Scheme can go up or down depending on various factors and forces affecting capital markets. Past performance of the Sponsor/the AMC/the Mutual Fund does not indicate the future performance of the Scheme. The name of the Scheme does not in any manner indicate the quality of the Scheme, its future prospects or returns. Please read the Statement of Additional Information and Scheme Information Document carefully before investing.



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