As ITI MF completes more than six months of launching its multi cap fund, the fund house shares its perspective on the opportunities across large, mid and small cap stocks. “We see large correction in mid and small cap indices but several large cap stocks have also seen decent correction. While mid and small cap have corrected reasonably well but these are not as cheap as in 2013 October or 2008 October” said George.
Since your first equity fund was Multi Cap Fund, what was the rationale behind it?
Historically, we have seen that no sector or market capitalization has consistently been a top performer. In CY18, Nifty was the best performer, in CY17 the NSE Small cap was the best performer while in 2016 it was the NSE Mid cap Index. Same is the case with sectors. Investors may not have the expertise to identify which is the best space to invest in at a particular point in time. The fund’s flexible mandate allows fund managers to decide allocation based on where he or she sees most opportunities in terms of risk-reward. This gives the investor the benefit of participating in the winning category without doing switching from one scheme to another. We want to introduce products that are most relevant to investors and hence our first equity offering was “ITI Multi Cap Fund’
Take us through the investment and product strategy of ITI Multi Cap Fund. How is it different from other schemes in the market?
All our equity funds follow the ‘SQL’ Investment philosophy where S stands for margin of Safety – This means the fair value of business minus the current share price. The fund house will look to buy stocks with a good safety margin so that there is more room to generate long-term wealth for our investors.
Q stands for Quality of business – This is crucial as quality businesses are long-term wealth creators. These are strong and sustainable businesses with a track record of good RoEs.
L stands for Low leverage – Low leverage companies are generally cash rich. Therefore, they can invest and grow their business. In addition, high leverage companies are at a greater risk in case of business downturns.
At least 80% of the equity investments are in ‘core’ set of stocks i.e. companies are strong and sustainable businesses with competitive advantages in their respective field and have good capital allocation track record. Tactical bets i.e. companies with significant upside potential but going through temporary problems and at the same time trading at beaten down prices can be taken upto 20% of the portfolio.
We focus both on the ‘quality’ of underlying business and ‘margin of safety’ i.e. the price or valuation that we are paying for the business. We give equal importance to both, which we feel will provide investors with a smoother investment experience. Our focus is to provide investors with reasonable returns by investing in a portfolio of quality stocks.
Do you think there are enough attractively priced opportunities in the market in the current market scenario or are you holding cash?
We feel markets always give opportunities to investors who have patience and today's markets are no different. We have a policy of being invested in equity of minimum of 90%. Since the launch of ITI Multicap fund, we have always been invested in excess of 95%.
What is your view on the valuations in each segment of the market –large, mid, small cap stocks?
Today, as we see it, there are opportunities across large, mid and small cap stocks. We see large correction in mid and small cap indices but several large cap stocks have also seen decent correction. While mid and small cap has corrected reasonably well but these are not as cheap as in 2013 October or 2008 October.
Our call of preferring large caps over mid and small caps, when we launched our scheme in May 2019, has paid off. With the correction in markets, we have gradually increased our mid and small cap exposure from 15% at end of May 2019 to over 30% now, by adding some mid and small cap stocks that are looking attractive. However, we do not feel it is time to go whole hog in mid and small cap stocks as aggregate market valuations are not very cheap.
Why do you think Multi Cap Fund is ‘a must have’ in every investment portfolio?
We use our SQL investment philosophy that focuses both on the ‘quality’ of underlying business and ‘margin of safety’ i.e. the price or valuation that we are paying for the business. We give equal importance to both, which we feel will provide investors with a smoother investment experience. Our focus is to provide investors with reasonable returns, by investing in a portfolio of quality stocks.
