In an exclusive compilation by fundsupermart.com, some of the country's best Fund Managers speak candidly about their funds and their investment strategies that make the funds stand apart and reward its investors with benchmark-beating returns. The funds mentioned below are a part of our Recommended Portfolios for the year 2014.
PineBridge India Short Term Fund
Liquidity and credit quality are two sides of the same coin. The high grade philosophy followed by us can take advantage of the interest rate cycles which have characterized the markets in the recent past. It will be pertinent to note that this same philosophy not only enabled us to raise more than 90% cash / cash equivalent holdings in our open ended debt funds during the tumultuous times of July-August 2013 but also provide daily liquidity for these products with zero exit load. It is pertinent to understand that the principles of fund management and expectations from a high grade philosophy will be quite different than probably a high yield strategy. In equity parlance - a large cap strategy as compared to a small or mid cap strategy.
Over the past few months, we have taken exposure to the short and medium term credits. As mentioned above, RBI has infused additional liquidity via increase in term repo amounts and also OMOs.
These actions have currently brought the overnight rate close to the repo rate. A secular and sustained action by the Central Bank to align the overnight rate to the repo rate could positively influence the short and medium part of this curve. We remain constructive on this end of the yield curve. Sovereigns are likely to be continued to be preferred for duration calls.
UTI Short Term Income Fund
UTI Short Term Income Fund is primarily an accrual oriented income fund with the flexibility to maintain average maturity up to 4 years, to take advantage of the movement in the shorter end of the yield curve. Currently the fund aims to maintain, an average maturity between 1.5 to 3.0 years to take care of interim volatility in the bond markets. We continue to retain our conviction on this product, which has been vindicated by its good performance in the last couple of years. UTI Short Term Income Fund is well positioned in the 1-2 year segment and can be a good bet under prevailing conditions as we expect to see the short term yields coming off based on positive factors leading to steepening of the yield curve going forward. Hence, investors can look to increase exposure to UTI Short Term Income Fund with a 6 to 12 months horizon.
Reliance Regular Savings Fund - Debt Option
The fund seeks to generate accrual returns through yield enhancing credit exposures along with capital appreciation due to the moderate duration in the portfolio. In line with our investment philosophy of not carrying high duration in our credit oriented fund we are maintaining duration of around 1.75 years with focus on higher accruals.
The fund currently has reasonable exposure to liquid corporate bonds especially in the PSU segment so as to explore opportunities on the credit curve over a period of time. Subject to adequate credit comfort, we will incrementally shift from shorter maturities AAA PSU assets to 2-3 years private assets yielding higher rates in the current environment and enhance both the gross yield as well as duration of the fund. Curve steepening due to further reversal of measures from RBI will add to overall returns into the fund.
Investors who are comfortable with good quality private sector credit exposure and whose time horizon is more than a year can consider investing in the fund which will run duration of up to 2 years, through high accrual assets.
BSL Dynamic Bond Fund
It is an actively managed income scheme that is largely driven by two guiding factors:
- "Absolute return bias" where it endeavors to preserve the purchasing power of the capital
- Generating "total returns" that comprises of capital gains and interest income
- For the purpose of exploring avenues of capital appreciation, it seeks to invest in government securities, corporate bonds etc.
- To capture higher interest income, it seeks to invest in structured credit instruments
- Within the provisions and limitations of the SID, the scheme intends to limit the modified duration to go beyond 3.5 years, as Fund manager believes that otherwise it may become harder to preserve the purchasing power of capital
- It may be considered by investors with investment horizon of 9 months and above
The scheme continues to invest with a 'barbell' strategy where about 72% of the net assets invested in up to 3 year bucket and ~25% of the net assets invested in the 5 year and above bucket. Large part of the portfolio continues to be invested in spread assets of 1-2 year bucket aiming for higher carry, and intended to insulate from yield curve volatility. It is advisable for investors to consider staying invested in the current regime, thus enjoying a healthy accrual with a chance to make capital gains as well. Average Maturity stands at 2.3 years. The YTM of the scheme, as on 31 December 2013 is 9.71% with closing assets of 11831 cr & 9.31% YTM.
Canara Robeco Income Fund
Canara Robeco Income aims to generate income through investment in Debt and Money market securities of different maturity and issuers of different risk profiles. The fund is actively managed and endeavours to capture the spreads between G Secs and Corporate Bonds along with duration play. The important parameters that strengthen case for investing in the Income fund are:
(a) current account deficit witnessing downward trajectory with improvement in trade deficit
(b) RBI expecting CPI to moderate going ahead
(c) Muted IIP & GDP growth
All this indicate that RBI will have to look at monetary easing in next couple of quarters to come. The pre-election scenario does not give clear direction on rate movement at the long end of the yield curve on the back of unpredictable outcome of elections and Fed tapering, however with currency being stable and other aforesaid parameters the overall interest rates are likely be lower by end of 2014. On the Fixed Income side, we remain defensive in our allocation with more focus on low to moderate duration securities. However the fund will actively play across the yield curve and also on corporate bond spreads to take advantage on the expected downward trend in rates. Investors with 1-2 year investment horizon can look at staggered allocation to this fund.
ICICI Prudential Focused Bluechip Equity Fund
The fund's investment strategy is based on 3 criterions:
Long-Term Focus: The Fund has adopted a "buy and hold" approach. The Fund aims to identify companies that offer reasonable potential for long-term growth. It intends to take aggressive position in high conviction stocks with an aim to generate alpha.
Bottom-up approach: The focus is more on stock selection than sector selection. The stock selection follows the bottom-up approach. The endeavour is to select the best stock/s in a sector than to diversify into many stocks confined to sectors.
Benchmark hugging strategy: The Fund seeks to create a reasonable diversification across sectors while concentrating on around 35 stocks to limit dilution by over diversification. This is achieved by a benchmark hugging strategy, which ensures that the portfolio is well diversified across sectors, hence may help reducing the overall concentration risk.
BSL Frontline Equity Fund
In the near term the economic activity is expected to pick up driven by a number of factors. a) The good monsoon has helped increase agricultural output which bodes well for the rural economy; b) Inflation and interest rates are expected to peak in the next few quarters. c) Rupee Depreciation has resulted in improved competitiveness for Indian exporters versus other countries. This comes at time when most of the developed world is witnessing a steady economic recovery leading to demand for global merchandise going up. d) Over the medium to long term the growth trajectory would be sustainable once investments pick up. The Cabinet Committee on Investments (CCI) and Project Monitoring Group (PMG) are working to resolve issues related to execution of projects. In addition, further step up is expected once general elections are through. Going ahead, we believe the above mentioned factors would lead to an improved growth outlook. Hence we are overweight on sectors like Banking and Financial Services sector, Software, Pharmaceuticals, Capital Goods etc., which is well reflected in our portfolio.
UTI Opportunities Fund
Our portfolio is positioned for a gradual and sluggish recovery over the next few quarters. In this scenario IT services becomes the new "defensive" and with the developed markets sustaining the growth momentum, it could also surprise investor’s with growth as well. Our call on cement, remains a crucial one, we will hold till mid March, the period by which traditionally cement prices strengthen, if not, we would trim aggressively. Our auto exposure could be played out through the ancillaries, also mid caps and thus currently in flavor.
Based on the above thought process it should be evident that we are "hoping" for a consolidation, albeit a "healthy" correction. We would use this opportunity to add to our banking and automobile sector weights. This would be funded through paring of consumer staples and energy sector within the portfolio.
Mirae Asset India Opportunities Fund
Neelesh Surana & Gopal Agrawal
Mirae Asset India Opportunities Fund is large cap biased diversified fund, which has the flexibility to invest across sectors, market capitalization, themes & investment styles. In general, midcaps is about 25-30% of the portfolio, with focus on larger midcaps. The overall investment approach is to build a portfolio of solid businesses that could perform creditably over all time frames. While we follow a bottom-up approach for stock selection, the overall portfolio construction also consider sector weights of benchmark, to reduce risks. Some binding principles to our investment approach are as follows:
- Focus on businesses which have sustainable Competitive Advantages and high Return ratios (E.g.: ROE, ROI etc.). We prefer companies which are sector leaders
- A strong and clean management track record that has proven it can manage businesses in all economic cycles
- We seek companies which provide "Margin of Safety", which mitigates underlying risks (related to business, liquidity and volatility)
- We prefer companies with Strong Earnings Growth & Earnings Visibility
ICICI Prudential Discovery Fund
The Fund follows a value investment style and intends to offer a diversified portfolio of stocks that have high potential but are quoting at a discount to their fair/intrinsic value. The Fund follows a bottom-up investment approach along with a blend of strategies like value, dividend yield, contra and special situations.
Diversification: The Fund aims at maintaining a well-diversified portfolio with the flexibility to invest across Sectors and market capitalisations.
Value investing: The Fund, through its process of discovery, seeks to identify stocks whose prices are low relative to their historic performance, earnings, book value, cash flow potential and dividend yield.
Beyond these, the Fund Manager may use contra investing strategy and special situations:
- A contra investing strategy entails not joining the bandwagon. It involves selection of stocks that are not popular at the moment but have the potential to deliver over time because of factors like strong fundamentals, future turnaround in the cycle and so on
- Special situations - Typically, these are large cap stocks that the Fund Manager believes are beaten down due to non-fundamental reasons
All of these indicators are based on the fact that the market is not always efficiently matching price with performance. Investment managers are betting that this inefficiency gives them an opportunity for reasonable returns.
SBI Emerging Businesses Fund
- High risk, high return portfolio strategy
- Consciously concentrated; target to own around 20 to 30 stocks
- Portfolio built on high conviction ideas from a minimum 3-year perspective; theoretically market cap agnostic but tends to mid-and-small-cap biased due to the 'high return' nature
- No sector bias, benchmark agnostic
- Max 10% cash
- Investment perspective – long term, 3 years plus
Tata Dividend Yield Fund
Tata Dividend Yield Fund (TDYF) is an open ended equity fund that invests at least 70% of its assets in shares with high dividend yields. A particular stock is considered high dividend yield stock if its dividend yield is greater than the dividend yield of BSE Sensex at the time of investment. The Fund focuses on buying businesses which are generating cash and paying dividends consistently along with reasonable growth at times when such stocks are attractively valued and have better margin of safety. The Scheme uses dividend yield as one of the criterion to filter stocks to invest.
Investment in stocks with high dividend yields is a "Defensive Investment Strategy." High dividend yield stocks are more likely to provide greater degree of protection to investors than other stocks in falling equity market. On the other hand, these stocks show good possibilities of capital appreciation over a longer period of time.
As high dividend payouts, in general, imply that the underlying business has strong fundamental attributes and is generating sufficient cashflow from operations to fund its growth and pay out dividends. A portfolio of such carefully selected strong cash generating businesses purchased at right price would do well over a long period of time with gains coming from both dividend yield and capital appreciation.
ICICI Prudential Banking & Financial Services Fund
Portfolio construction: The Fund Manager can select stocks across the universe of listed companies available in the Banking and Financial Services sector including Banking, Broking, Asset Management, Wealth Management, Insurance, Non-Banking Financial Companies (NBFC), Investment Banking, Leasing and Finance, Term Lending Institutions and other companies as maybe engaged in providing banking and financial services. While the Fund's performance is benchmarked against S&P BSE Bankex, the Fund may opportunistically invest in companies outside the same, but which form part of Banking & Financial Services Industry.
Investment approach: The Fund can invest across market capitalizations and uses blend investment style.
PineBridge Infrastructure & Economic Reform Fund
The Infrastructure sector has been facing two major challenges. First is the inadequate capacity of the government to provide the necessary support such as project clearances etc. Second is the price of public goods (spectrum for example) which are transferred to the private sector. The companies, in turn, had focused only on India demand as they believed that it was enough for their growth aspirations.
The government is already addressing the capacity issue and has seen initial success. The judiciary has forced the government to relook at the "pricing" issue for public goods and again, we are seeing policies and procedures being put in place to address this. The companies have realized that they need to geographically diversify their business and are now seeing a healthy portion of their sales coming from exports. The near term challenge is to attract equity in the sector so that balance sheets becomes less leveraged, thereby helping propel growth.
JPMorgan Greater China Equity Off-shore Fund
We expect the macro environment to be stable in 2014 while reform implementations become the focus. We do not see strong surge of activity as corporate China and local governments go through the deleveraging process. We also do not see sharp slowdown in the economy as the government has room to ease its monetary stance, maintaining enough room to carry out reforms. On the structural reform front, we expect that 2014 will be the key policy launch year. As the government has set 2020 as the deadline for achieving major reforms, we believe the next two years will be the concentrated launch period for key policies. The market trades at 9x forward one-year price-to-earnings, with 10% earnings growth looking undemanding (vs.mid cycle 12x). We believe structural reform could cut SOE costs as well as drive further multiple re-rating for China, supporting a relative healthy market outlook for China.
L&T Global Real Assets Fund
The fund manager of the underlying Fund believes that there's a merit in bottom-up security selection at this juncture as central banks begin to withdraw stimulus support. He expects that the recent developments would return markets’ focus to company fundamentals, reduce the impact of policy related swings and provide multiple drivers for performance. Cairn Energy remains the fund's largest overweight holding at the stock level. The fund manager continues to favour the prospects of its 2014 drilling programme, notwithstanding the short-term disappointment from its Moroccan operations. The exposure to agriculture-focused holding Monsanto was also increased during the quarter as it has outlined continued growth initiatives, supported by a robust research and development (R&D) pipeline as well as the development of new areas such as precision agriculture. The Fund also has significant overweight position in SBA Communications due to likelihood of substantial investment in network build ups/tower leasing in the US over the next 3-5 years. The fund manager has a positive outlook on US construction-related holdings. He increased the exposure to cement and construction materials producer Eagle Materials. In addition to US non-residential construction, Eagle supports shale-related construction activity. Wolseley, a leading US building materials company listed in the UK, was also added as a valuation opportunity compared to its US peers. (Source: FIL Limited)
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