Describe your fund management style
Our investment approach is to focus on stock selection as returns are driven by individual merits of business. From portfolio construct perspective, the approach is to have diversification across sectors and stocks for an optimal risk-adjusted performance.
Most of your funds were launched during the 2008 financial crisis. In fact, your first equity fund Mirae Asset India Opportunities Fund was launched in April 2008 when Sensex hovered around 17000. Similarly, Mirae Emerging Blue-chip was launched in July 2010 when Sensex was at 17800. How did the timing work in your favour to deliver good performance? What helped these funds to perform?
The timing of launch as you rightly observed did not work in favor. In the process of wealth creation through equity investment, what is important in the long-term is stock selection. Mirae Asset India Opportunities Fund has delivered 18% CAGR over the last 7 years, Mirae Asset Emerging Blue-chip Fund (which completed 5 years recently) has delivered returns of about 24% CAGR. A combination of factors like a disciplined approach to investing with focus on buying quality companies up to a reasonable price and diversification has helped us deliver a satisfactory track record.
What is the criteria for entry and exit for stocks in your portfolio?
Our stock selection process has three aspects: business selection, management analysis and valuation. We look at quality businesses with decent growth prospects and their ability to deliver return (i.e. return on capital employed). The second filter is with respect to management analysis, which is a bit subjective but you have to look at the track record and corporate governance. The last factor is to arrive at a particular value. The value has to be more than the market price so that there is enough ‘margin of safety’.
What are your risk mitigation strategies?
The key risk arises from all three parameters mentioned above. The portfolio level risk mitigation is done through assigning portfolio weightage and not going overboard on a particular theme or stock.
Do you think the markets have the potential to deliver the kind of performance which we saw in 2014? What are the key risks to market currently?
It is unlikely that markets will deliver 2014 kind of returns. The year 2014 started with low base (attractive valuation) and subsequently macros changed significantly which lead to such high returns. While the returns will be lower this year, our view is positive that we would see the full impact of improvement in macros translating in growth. The key risk at this time is related to execution.
What cues are you closely watching at this juncture?
We believe that the difference between favorable macros and corporate earnings will be bridged over time and the recovery will be led by government capex and revival in urban discretionary spends. We are closely watching data points like interest rates, government spending, etc. which influence these factors.
Which sectors do you think will play out well in the next three to five years?
We are positive on private banks, consumer discretionary, healthcare and building materials.
Fund managers can invest a small portion in unlisted securities. Are you looking to investing in e-commerce sector?
We do not invest in unlisted securities. The e-commerce is definitely an important space which will have few winners and many losers. Most companies are unlisted now. Also, it is important to look at existing traditional companies to understand the negative implications on their business model due to e-commerce.
When do you expect a revival in corporate earnings?
A full revival in corporate earnings will be visible in FY17 when the current disconnect in favorable macros is translated in volume growth, both on the investment side as well as on the consumer side.
How is Mirae Asset Prudence Fund different from other existing equity oriented hybrid funds? Why should investors consider this fund?
Mirae Asset Prudence Fund offers a simple solution to benefit both from equities and fixed income. The asset allocation will be minimum of 65% in equities, which can go up to 80%. The remaining will be invested in debt. The shift of allocation between debt and equities is a function of valuations, growth outlook and interest rates. This is a large cap focused scheme. The fund will invest 65% of its assets in the top 100 companies.
Has the recent volatility in the Chinese market given you opportunity to increase your exposure to China through India-China China Consumption Fund? How are going about managing this fund?
While the recent volatility in Chinese stock market has been the focus over the last two months, there are significant reforms happening in China. The key measures are related to the Central bank’s bail-out of government debt, capital account relaxation, relaxed monetary policies and so on. The prospects of China’s economy look good as the government is trying to transform the growth model to a more sustainable consumption oriented path. We have increased weightage in quality companies in consumption oriented sectors in the Mirae Asset India-China Consumption Fund.
In your career as a fund manager, what have been your greatest learnings?
There are broadly two types of mistakes - errors related to ‘commission’ and those related to ‘omission’. Most of my learnings are related to business selection. My most important learning has been that one should not repeat the same mistakes.
