Paul Parampreet, Fund Manager, Edelweiss Mutual Fund talks to
Cafemutual about Edelweiss Absolute Return Fund, his learnings as a fund
manager and more.
What
kind of investor is Edelweiss Absolute Return Fund suited for?
The objective of Edelweiss Absolute Return Fund (ARF) is to generate absolute returns with low volatility over a longer tenure of time. The scheme is ideal for risk-averse investors who would like to avail benefits of equity oriented investments without subjecting themselves to the high volatility risk inherent in the equity markets.
Since it’s an 'Absolute Return Fund', how do you ensure that this fund delivers positive returns regardless of the market conditions?
The objective of ARF is to generate
absolute returns with low volatility over a longer tenure of time. ARF is an
open end equity fund which seeks to operate at a significantly lower volatility
compared to the equity markets. ARF uses three main strategy buckets: a low
risk bucket which aims at lowering the overall volatility of the fund, a
special situations bucket which looks at providing good yield trades and a
hedged equity investments bucket which help generate long term returns. Over
the longer term (periods lasting more than 5 years), equity markets in India
have usually delivered inflation beating returns. In fact, the long term CAGR
of Nifty Index is close to 12-13%. Thereby, a multi strategy mix of the above
three buckets allows ARF to work towards meeting its objective.
Many
fund managers are bullish on mid and small cap stocks. With mid and small cap
stocks having rallied 72% and 83% respectively over the last one year, do you
think there's still some steam left in these sectors?
In the
short to medium term, risk to return ratio is not in favor of mid and small cap
stocks as the stocks have run up in the last 1 year and the volatility in the
markets have increased owing to various event risks (Budget & RBI rate cuts
to name a few). However, even post the last year rally, mid and small cap
stocks are trading at PE levels similar to large cap stocks. Also, the monetary
easing cycle has just started and the on-ground activities (credit growth,
demand etc.) have not yet picked up. Thus, from a long term perspective, mid
and small cap stocks are well poised for a good run.
Do you
subscribe to the view that closed ended funds can perform better than their
open end peers because of the fund's closed structure?
Closed
end funds do not face any liquidity squeeze. Absence of redemption pressure
gives the fund manager the elbow room to make investments while being less
concerned about tracking error. However, closed end funds carry point to point
risk. Their returns are dependent on inception date & maturity of the fund.
Open end funds, on the other hand, give investors the opportunity to move in
and out of equity as and when their investment objectives are met.
One book which has inspired you a lot and what did you like about it?
“The Intelligent Investor” by Benjamin Graham. It is one of the most insightful books on value investing. It teaches an investor the long term merits of patience, consistency and diversification.
In
your career as a fund manager, what have been your greatest learnings?
Markets give numerous opportunities to generate returns. However, one’s decision should not be influenced by hysteria and volatility involved in the markets. Systematic and disciplined investing adds great value. Consistently following quality growth stories pay huge dividends in the long term.
