Earlier this year, DBS Chola Asset Management became L&T Mutual Fund. Larsen and Toubro (L&T) already has a presence in the financial services sector through its two wholly-owned subsidiaries - L&T Finance Ltd. and L&T Infrastructure Finance Ltd. The overall size of the entities is over Rs. 9000 crores (as at January 2010).
We spoke to the fund house to understand their investment philosophy and what sets them apart. The fund managers, Anant Deep Katare and Bekxy Kurikose share their view on equity and fixed income markets respectively.
iFAST: Tell us about the investment philosophy followed at L&T Mutual Fund. What are the key factors that you consider in your decision making / security selection process?
L& T Mutual Fund:
Providing long-term gains to investors through strong research based stock selection and active portfolio management.
iFAST: Could you elaborate on the Investment Process you follow for Equity?
L& T Mutual Fund: The investment process for equity comprises conducting quantitative and fundamental analyses before selecting a gamut of stocks and thereafter, constructing a portfolio which is followed by evaluation and review of weightage assigned to different sectors. The performance of the portfolio is assessed based on Attribution Analysis to indentify gaps, if any and act to realign/position the portfolio accordingly. (See Chart 1)
The team does research across 145 stocks from different sectors which includes Auto, Auto Ancillaries, Banks, Cement, Chemicals, Construction, Consumer Durables, Consumer Non-Durables, Ferrous Metals, Fertilizers, Finance, Gas, Hardware, Hotels, Industrial Capital, Industrial Products, Media & Entertainment, Minerals/Mining, Non-Ferrous Metals, Oil, Petroleum products, Pharmaceuticals, Power, Real Estate, Retail, Software, Sugar, Telecom, Textile Products and Transportation.
The research team practices the following steps to appraise companies and rate stocks.
Chart 1: Investment Process - Equity
Research Flow encapsulates -
- Evaluate all secondary research inputs
- Company management/plant visits
- Obtain relevant primary inputs from other business associates (bankers, vendors, customers, intermediaries etc.,)
- Ascertain sustainability of business model
- Apply fundamental research tools for financial projection/valuation model
- Rating recommendation/ Ranking
The decision making process at the fund house is a collective effort which includes inputs/ review from the research analysts, the investment team and the fund manager.
(See Chart 2)
The decision making process is assisted by the ranking/rating assigned by the research analysts on a stock/sector as discussed in the research flow. This Buy/Sell/Hold recommendation of the analysts is the first step in the decision making process. Then, the investment team evaluates the ratings and assigns the risk weightage on individual stocks and sectors. Based on the recommendations and risk associated with each stock/sector, the fund manager chooses to construct or re-align the portfolio. These decisions are reviewed every 15 days by the investment committee as well as the future course of action is laid down.
In terms of best practices for any fund house, the review process, recommendations and stock section should be independent of each other to avoid mis-dealings.
Chart 2: Decision Making Process
iFAST: Also, could you share with us the framework followed for Debt?
L& T Mutual Fund:
The fixed income team communicates and discusses which top rated securities should be included in the bond portfolio. These securities after a detailed credit evaluation process are to be approved by the Investment Committee. The review process is conducted every month along with the equity team to lay down the future course of action.
On a fund level, L&T Mutual Fund has a dealing software to control and monitor investment activities to ensure that the investment objectives and asset allocation pattern are met.
Typically, a bond portfolio is affected by credit risk, interest rate risk, liquidity risk, re-investment risk and default risk. The fixed income team follows an investment manual which is a comprehensive set of guidelines including investment philosophy, processes to be followed by the fund management team and covers risk guidelines to capture deviations, if any and help the investment committee to monitor activities of the fund management team.
Chart 3: Investment Process - Debt
iFAST: How does L&T Mutual Fund hope to differentiate from other well established asset management houses?
L&T Mutual Fund: The given aspects differentiate us from other fund houses:
- Competitive Edge: - Run by thorough professionals & have established newer benchmarks, starting from engineering to finance.
- Robust Investment Process
- Experienced and Professional Team
- Employee asset base of over 64% Post Graduates of which many are MBAs, CAs, CS & CFAs
- Suite of Mutual Fund schemes for different investor requirements
- Houses the first ever launched AAA rated debt fund –LTMF Triple Ace Fund and Multi Cap Equity Fund in the industry
- Awards over the years for performance of schemes
- Led by Sanjay Sinha, CEO – one of the respected Fund Managers in the country
- Reach – Currently we are present in 50 locations
L&T Mutual Fund has a fairly robust risk management policy which sets us apart from others. The policy comprises globally accepted risk practices including GAP ratio, Stress Testing guidelines, Credit Risk and Liquidity Risk monitor and finally, the deviation norms and reports generated are sent to Investment Committee.
iFAST: The market indices have already touched two-year highs plus, several stocks have hit all-time highs. What is your outlook for the markets in the short-medium term?
Mr. Anant Deep Katare, Fund Manager-Equity: Considering markets are trading at fair valuation band, return expectation from the market should be fair. We expect markets to be in tune with corporate growth, which is expected to increase by 20% CAGR in couple of years as per consensus.
iFAST: Which key themes/sectors that investors can look for better returns from now on?
Mr. Anant Deep Katare, Fund Manager-Equity: Domestic driven themes continue to offer favourable risk reward in short to medium-term outlook. However, from a long-term perspective, we expect global recovery themes (Industrial Commodities, Software) to deliver better return compared to the broader market indices.
iFAST: In terms of asset allocation to fixed income, which debt funds are suitable for retail investors in the current high inflation and key rates rising scenario?
Mrs. Bekxy Kurikose, Fund Manager-Fixed Income: The debt funds suited for retail investors are -
L&T Liquid Fund: Since this fund invests in short-term money market instruments of less than 91 days maturity, and is to a large extent protected from interest volatility retail investors can look to park their short-term surplus in this fund and get returns in the range of 5% to 6%.
Fixed Maturity Plans (FMPs): We are regularly launching FMPs of various tenors like 3 months, 5 months, etc. FMPs give a stable return with almost nil interest rate risk as assets bought mature in line with maturity of the FMP. These can be invested into by the retail investor.
iFAST: Has there been any change in the positioning of the funds at L&T Mutual Fund? Please elaborate/share reasons.
Mrs. Bekxy Kurikose, Fund Manager-Fixed Income: In the debt funds category, there has been a repositioning post 1 August 2010, when there was a change in Marked-To-Market (MTM) norms wherein Certificates of Deposit/Commercial Papers of greater than 91 days would now be linked to market rates. Accordingly, the L&T Freedom Income Fund is positioned as an ultra short-term debt fund with low MTM exposure and L&T SIFLEX is positioned as an ultra short-term debt fund with moderate MTM exposure to CDs/CPs or less than 1 yr maturity.
|Statutory Details: L&T Mutual Fund has been established as a trust under the Indian Trust Act, 1882 by L&T Finance Limited, Sponsor/ Settlor (liability restricted to the seed corpus of Rs. 1 lakh) with L&T Mutual Fund Trustee Limited as the Trustee Company and L&T Investment Management Limited as the Investment Manager. Risk Factors: All investments in mutual funds and securities are subject to market risks and the NAV of the Schemes of the Fund may go up or down depending upon the factors and forces affecting the securities market. Investment in mutual fund units involves investment risks such as trading volumes, settlement risk, liquidity risk, default risk including the possible loss of principal. Past performance of the Sponsor/AMC/Mutual Fund does not guarantee future performance of the Schemes. The Sponsor is not responsible or liable for any loss resulting from the operation of the Schemes beyond the initial contribution of Rs. 1 lakh made by it towards setting up the Fund. The names of the Schemes/Plans/Mutual Fund do not in any manner indicate either the quality of the Schemes or its future prospects and returns; and are only the names of the Schemes/Plans. There can be no assurance that the objectives of the Schemes/Plans/Mutual Fund will be achieved. Schemes specific risk factors: Investment in the Schemes shall be subject to various risks including but not limited to risk associated with: Investment in Equity and Equity related Instruments & Bonds such as Performance Risk, Credit Risk, Reinvestment Risk, Interest Rate Risk, Investment in Derivatives, Securitised Debt, etc. Please read the Scheme Information Document and Statement of Additional Information carefully before investing. Disclaimers: The article (including market views expressed herein) is for general information only and does not have regard to specific investment objectives, financial situation and the particular needs of any specific person who may receive this information. Investments in mutual funds and secondary markets inherently involve risks and recipient should consult their legal, tax and financial advisors before investing. Recipient of this article/ information should understand that statements made herein regarding future prospects may not be realized. He/ She should also understand that any reference to the securities/ sectors in the document is only for illustration purpose and are NOT stock recommendations from the Author or the AMC or any of its associates. Any performance information shown refers to the past should not be seen as an indication of future returns. The value of investments and any income from them can go down as well as up. Investment objective and classification: L&T Liquid Fund (an open ended high liquidity income fund): To generate reasonable returns while maintaining safety and providing the investor superior liquidity. To achieve this objective, investments will be predominantly made in a well-diversified and highly liquid portfolio of money market instruments, government securities and corporate debt.
Load Structure: L&T Liquid Fund – Entry and Exit Load – Nil.
Terms of Issue: Units of the Schemes are being offered at NAV based prices, subject to the prevailing loads. The AMC calculates and publishes NAVs and offers for sale, redemption and switch outs, units of the Schemes on all Business Days, at the Applicable NAV of the Schemes. Scheme Information Document, Statement of Additional Information, Key Information Memorandum and Application Forms are available at AMC Branches / Mutual Fund website at www.lntmf.com / Investor Service Centres / Distributors.
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