Kenneth Andrade, Head –
Investment, IDFC Mutual Fund talks to Cafemutual about his journey as a fund
manager, his investment idol and more.
What is your investment philosophy and
style? Do you identify yourself as a growth or value fund manager?
I think most managers are known by their style. The opportunities which Indian market presents are very similar to the opportunities available in other emerging markets as well. As you move from a under developing market to a developed market, there is multifold change in the macro environment and a number of companies get competitive. Most managers tend to have a style and that has worked for us. We like predictability of business and more importantly businesses that are large and are in a dominant position within a sector. We buy them at reasonable valuations. Once we identify these companies, we tend to invest in these companies through multiple cycles.
IDFC started the trend of closed end funds in 2013. Are you planning to launch any subsequent series of IDFC Equity Opportunities Fund?
There was a large gap in valuations in the market when we launched this fund. The simplistic way to package it was to terminate the fund when the valuation gap narrows. So we threw our ring in the hat at that time. We identified some companies which were available at attractive valuation. The probability of losing money at that time was probably negligible. So, opportunities like this come once in a while. Thus, we launched a closed end fund which would provide absolute return to investors. It came with dividend option only. We will not launch any more closed end funds at this juncture. We don’t see an opportunity in the market right now. Even if we launch, it has to be a different from our existing funds. All the three series of IDFC Equity Opportunities Fund have different portfolios. The overlap between the three series will be less than 20%.
Are you planning to open subscriptions for IDFC Premier Equity Fund in the near future? Why does such a strategy work according to you?
The fund enters 10th year this year. The fund has outperformed its benchmark for ten years in a row. Money is flowing in mutual funds now. Markets are not terribly cheap. Investors will have a bad experience if we raise money at a bad time. In the near term we don’t see a window of opportunity.
How are you managing the inflows coming in your open end funds?
At the bottom of the market we become asset managers and at the top of the market we become asset gatherers. There is some disconnect in this industry. Unfortunately, this is a global trend. We will get very enthused when the markets have delivered good returns and get pessimistic when markets are at all-time low. The long term opportunity does exist but in the short run, we have reached a valuation barrier. Markets can go higher but earnings have to catch up. Even if earnings catch up the stocks have already priced in this data.
IDFC Premier Equity has crossed Rs. 7,000 crore AUM. Is the growing size of this fund posing a challenge for you to manage it?
Our market capitalization is $1.5 trillion now. At Rs. 7,000 crore, the fund is not unmanageable.
Mid and small cap stocks have run up sharply. Do you still see opportunities in this space?
I think the focus of the investment managers should move away from trying to look for cheap companies to try and find companies which can execute well. In the small and mid-cap companies, there are a handful of companies through which we can create a portfolio which can make money in the long term. So there are opportunities in the market currently but the valuations are not cheap.
Government has initiated lot of reforms, are you seeing any changes on the ground?
Most investors expect things to change overnight. It’s going to take time. Market is disconnected with the real economy at this juncture. Markets are expensive and we hope that earnings will bounce back.
You started as a research analyst and today you are one of the most successful CIOs. What were your greatest learnings?
You have to be persistent in what you do. There will be many companies entering the market and you have to find the companies which have potential. You have to have patience and give enough time to the companies you invest in to see results. As a portfolio manager, you have the luxury to create a portfolio of 30 stocks and out of this 30 even if you have 12 stocks right, you can chart your own career.
In your fund management career, which mistake would you have liked to avoid? What have been your notable mistakes?
Mistakes kept happening in various market cycles throughout my career. Sometimes I had patience with business plan but I ignored certain data points which led to mistakes. You have to invest over a longer period of time. Fund management is a game of patience.
Did you always want to become a fund manager?
I’m happy with what I’m doing right now so I don’t think I would be doing anything else.
You do not have CFA or finance degree under your belt. Is a degree in finance necessary to succeed as a fund manager?
A finance degree helps you in understanding things faster. Some of my younger colleagues who have finance degree are much more up the curve when I was of their age. Over a period of time, it is only experience which helps you succeed in fund management.
Do you invest your own money in the funds managed by you?
Yes, I invest in the funds managed by me.
Whom do you look up to in the field of investment management?
There is no one specific I map my investment style to. I learn from a diverse set of people. Every individual fund managers has his/her strength.
Your favorite book...
The simplest books on investing which I have come across are Peter Lynch’s – One up Wall Street and Beating the Street. I associate my fund management style to Peter Lynch.
How do you see the role of luck in investing?
It does play a role but I think ultimately hard work and are persistency is required to become a successful fund manager.
What is your advice to investors at this juncture?
Investing is a continuous process. You don’t come in when things look good and exit when things are gloomy. Most investors invest in mutual funds to make returns. Most of us forget that we invest in underlying companies which will be in existence for a very long time. So it doesn’t matter if your market timing is wrong as long as you are investing in good companies.
