Here is why a focused investment strategy makes sense

Focused funds can offer a relatively better risk adjusted return potential over the medium to long term. Why is this so and how do these funds’ function?

ITI MF explains this and shares a few case studies to explain this better.

Focused mutual funds

Focused mutual funds hold up to 30 stocks and invest at least 65% in equity and equity related instruments. Also, since they define their market cap concentration, focused mutual funds have the flexibility to find suitable opportunities.

Case studies

Here are a few case studies that exhibit how a focused approach as against a diversified approach by picking the right stock has the potential to generate higher returns.

For E.g Rs 10,000 invested in Top Performing Auto Stock in 2018 would have grown 10X in 5 years & generated wealth of Rs 1,05,583 for investors.

A Top Performing Auto Stock having a diversified presence across segments of cycles, accessories, engineering (precision steel tubes, strips), metal forming, gears etc & the stock has shown continuous improvement in capital efficiency & cash generation.

Whereas the bottom performing stock has had subdued performance due to inflationary pressures, & sub-optimal offtake due to supply side constraints & has been severely impacted due to increasing regulatory interventions & fierce competition witnessed from other automotive companies.

For e.g. In this case, a similar amount of investment in the top performing FMCG stock has delivered a 5-year CAGR of 50%, higher than the bottom performer and NIFTY FMCG TRI.

Top Performing FMCG Stock is leading franchise for a reputed soft drink Company. It has demonstrated robust volume growth due to strong summer & generated margin expansion through operating leverage & reduction in debt & interest.

Whereas the bottom performing Auto stock faced intense competition in its segment & generated sub-optimal returns for the investors.

ITI Focused Equity Fund - Asset Allocation Matrix (As per SID)

ITI Focused Equity Fund is an open-ended NFO investing in maximum 30 stocks across market caps. 

The fund house may follow a portfolio creation approach with a 40:40:20 allocation strategy, based on suitable stock picks identified by Fund Manager and prevailing market conditions.

Broadly speaking, 40% of the funds may be invested in steady compounders generating reasonable returns with low volatility and may form the core portfolio. Another 40% of funds may be invested in companies that are market share gainers which shall be the alpha portfolio. And the remaining 20% may be invested in emerging themes and new age companies that have the potential to generate break-out growth going forward.

Note: The portfolio allocation will be based on stated investment objective and asset allocation and will be subject to changes depending on the fund manager’s view of the equity markets.

The fund house currently has five themes that shall focus on:

• Financialization of savings - Banks, life Insurance companies, capital market plays, asset management companies, fin-tech
• Consumer leverage and demographics - Consumer companies (FMCG+ Durables), rural focused companies, retail
• Capex recovery cycle and make in India - Capital goods, construction, cement, industrials, corporate banks, power utilities, auto, chemicals, consumer durables.
• Real estate and home building - Real estate, pipes, ceramics, tiles, plywood, consumer durables, cement
• Export and China +1 opportunity - Information technology, pharmaceuticals, chemicals

ITI Focused Equity Fund is ideal for investors with a long-term investment horizon of 5 years and above, having a relatively higher risk appetite and seeking higher return potential.

The NFO opens for subscription on May 29, 2023, and will remain open for subscription until June 12, 2023.