Mirae Asset India Opportunities Fund has been putting up some good numbers, but nailing down its style is not easy. Give it some more time
At first blush, this would appear to be an aggressive offering. After all, that is what the perception of an opportunities fund is: one that takes bold sector and stock bets and swiftly moves between sectors wherever money is to be made. It is not unusual to find a very concentrated portfolio in such a fund. However, upfront let's be clear: that is not what the Mirae Asset India Opportunities Fund is all about.
The fund manager has complete flexibility to invest in stocks across sectors and market caps. He can move out of sectors which do not appear to have much upside and focus on those with greater chances of an upswing. But he keeps himself well grounded, in what one may refer to as a conservative strategy. "Our fund is not aggressive. Let me clearly state that this is a flexi-cap fund with a large-cap bias," is how fund manager Gopal Agrawal likes to describe it. "The beta of the fund has been 0.98 since inception," he emphasises. It's true. The portfolio does reflect this stance. The fund has more the feel of a diversified equity fund rather than that of an opportunistic one. Like most diversified funds, its top two sector bets are Financials and Energy. Even in its stock picks, the fund has rarely gone overboard.
What the fund manager attempts here is to target long-term appreciation and simultaneously capture short-term opportunities. Hence the dual strategy of investing in core (mandated between 60-70%) and tactical (30-40%) portfolio allocations. Agrawal maintains a core portfolio of 20-22 stocks with an average allocation of 54 per cent, the balance being opportunistic bets.
The bloated portfolio seems to be slightly out of place in such a fund where one would expect a more focussed approach. But then again, this is not the style of the fund manager. In its short life, the fund has already picked up a total of 142 stocks at some point of time or other and less than 50 per cent of them were held for more than six months. A direct result of the fund manager going for opportunistic bets. "We follow a core and satellite approach because of which the turnover is a little on the higher side," agrees Agrawal. "In this fund, the Top 20 holdings constitute 60 per cent of the portfolio. We have some stocks with smaller holding due to tactical reasons."
The fund's top sectors are Financials and Energy (35% of the portfolio) and have been so for a while. Both these sectors did not have a great run in 2009. Amongst all the BSE sector indices and the Sensex, BSE Bankex ranked sixth and BSE Oil & Gas ninth. "The banking and financial services space is the best sector to play economic recovery and growth. In the current fiscal, we are expecting an over 20 per cent loan growth and stable asset quality. NPAs are coming down significantly which will help re-rate the sector. We are also very positive on the gas-related business in India. The government's efforts to de-control the sector and the price hike of petro-products and gas may lead to re-rating here too," says the fund manager.
Whether one agrees with the positioning or not, Agrawal has proved his point. The fund was a top quartile performer in 2009 with a return of 109 per cent. Though he considers his fund to be a flexi-cap offering, according to our parameters and classification at Value Research, the fund falls in the "Large & Mid-cap" category. This category delivered 81 per cent last year while the fund's benchmark (BSE 200) fetched 88.50 per cent. A clear outperformer.
Agrawal began last year with a bang. He sold off 10 stocks comprising 10 per cent of the portfolio in January 2009 and raised equity exposure by the end of February to 93 per cent. The timing was perfect since the market did a complete turnaround in March 2009.
Despite the impressive numbers, he did miss out substantially on last year's rally in auto stocks. In 2009, BSE Auto delivered 204.16 per cent. But the fund did not really hop on to this ride. Agrawal entered the sector in July 2009, after a 2-month break and increased it to 7.31 per cent by the end of 2009. The average exposure of the category to Auto was 6.11 per cent in December 2009. "We participated in the Auto rally and benchmark-wise we are overweight on the sector," he says.
Since the start of this year, the fund's exposure to FMCG and Healthcare has shown a slight increase. "We are very positive on the Indian consumption theme which is why we added our exposure to the consumer sector and are overweight on it. In pharma, we are seeing significant opportunity in generics, CRAMS and domestic formulations. The Indian pharma sector is helping the world reduce costs of drugs without compromising on quality. But we are very selective in our approach to this sector," says Agrawal.
This is a new fund that still has to prove itself. No doubt it had a great 2009, but it did not impress in the three quarters of 2008. This is not a contrarian fund or a value offering, so it would be wrong to expect the stock and sector picks to be out of sync with what the market is betting on. However, if you are looking for an aggressive offering with very concentrated bets, this would not particularly fit the bill either. One would have to adopt a wait-and-watch stance with this large-cap tilted offering.
