"We pick sectors that grow faster than the GDP and companies that grow faster than sectors" is how Anand Shah, Deputy CEO & Head of Investments, BNP Paribas Mutual Fund begins his conversation, as we sit with him to understand the thought process behind the New Fund Offer (NFO), BNP Paribas Focused 25 Equity Fund, being launched on the 15th of this month. The fund house is launching a pure equity fund after 11 years and the USP of the fund is alpha generation via a concentrated portfolio.
Alpha is a result of Conviction*Size of the Bet and Conviction is defined as B.M.V (Business, Management & Valuation).
This framework which can identify superior businesses, with a strong management at reasonable valuations coupled with an experienced fund management team who has the expertise to identify multi baggers and create wealth for Investors, is their recipe for success.
Quiz Shah on why the fund house has suddenly decided to launch a pure equity fund which follows a focused strategy and pat comes the response: "We are of the view that macro-economic fundamentals for the domestic economy will be weak between 2017 to 2020, while the reverse will be true for the micro scenario. Although government initiatives like Farm Loan Waiver, Housing Interest Rate Subsidy and Seventh Pay Commission will stress the government's finances, they have the potential to boost consumption and infrastructure spends which will drive the earnings growth in the coming years".
People familiar with Shah's style of investing know that he is a shrewd investor who has always believed that this is a stock pickers market and scouts for opportunities irrespective of sectors and does not follow benchmark hugging strategies.
The fund has a mandate to create a concentrated portfolio consisting of a maximum of 25 companies having a "superior and sustainable" earnings growth. This will be a multicap fund, where 65% of the stocks would be selected from NIFTY 100, while the remaining allocation will be made into high conviction, fast growing, small and mid-sized companies. The fund management team will use a bottom-up approach to select stocks and the style of investing will be a blend of value and growth. The focus will be strictly on companies that are market leaders, have strong financials and a quality management and have the potential to create wealth by delivering steady performance through the ups and downs of the market.
Where will the Fund Invest?
The stocks in the portfolio will be selected from those companies which will benefit from the structural opportunities available in the domestic economy aided by:
Why do we like BNP Paribas Focused 25 Equity Fund?
We have always believed that India is a Stock Pickers market and hence have gone ahead and recommended funds which play on themes based on pure conviction of the fund management teams. While the world is concerned with expensive valuations; iFAST Research continues to recommend actively managed funds across the market capitalization spectrum which bets on fundamentally strong companies/sectors on the path to recovery. We also like funds whose focus themes are in line with those at North Block.
As we said in our India Strategy 2017: Favourable Headwinds continue for a Substantial Growth Rate,
"iFAST Research has always been of the view that we like India not only because of the stable macro-economic indicators and attractive valuations, but the presence of a reformist government that knows its business. We believe that the macro-economic indicators and earnings of India Inc. will move in a positive territory only if we have good policy makers at the centre. Of course, external factors can still play spoilsport; however, a stable government with good policies can definitely help the country weather the storm. The central government is working on many projects, a few of which, we believe, could change the way our global counterparts view India a few years down the line".
We are of the firm belief that a partnership between Anand Shah, whose eye for detail when it comes to picking the right stocks and Ritesh Jain, an erudite in macro-economics, will benefit our investors in the long term.
When we introduced BNP Paribas Mutual Funds in our Recommended Funds list in 2016, we wrote "A fund house with limited number of funds and a passionate fund management team can create value for investors in the long term".
We highly recommend BNP Paribas Focused 25 Equity Fund (High Risk High Return Fund) only to those Investors who accept the market volatility as a normal roller coaster ride and continue with their investments as usual. Hence our Moderately Aggressive and Aggressive Investors can take an exposure into this fund for a time period of 5 years.