In an interview with Outlook Money Kartik Soral, Equity Fund Manager at Edelweiss Asset Management speaks about small and mid-cap stocks:
Once the stock enters the portfolio, it is periodically tested on these two parameters
In an interview with Outlook Money Kartik Soral, Equity Fund Manager at Edelweiss Asset Management speaks about small and mid-cap stocks:
1. What is the composition of the fund and its stock selection?
Given the mandate of the fund, there is almost an equal mix of stocks from large-cap and mid-cap space. Across both these universes we stick to our multi-factor investment approach that helps us get a healthy mix of growth, value and safety flavors in our portfolio. We believe such an approach is important to generate superior returns over a long term period.
2. What is the investment universe for this fund?
We usually stick to top 300 stocks by market cap as the investment universe as we believe the risk-return payoff is ideal within this space. We do look at opportunities beyond this universe when the payoff is in our favour but such investments are not a mainstay of our portfolio.
3. Does the three year lock-in help when managing this fund?
A three year lock-in helps manage the liquidity risk which allows the fund managers to explore investment opportunities in the mid-/small-cap stocks where the trading volumes are low. We find such a lock-in quite useful for such mandates.
4. How does a stock enter this fund?
A particular stock is primarily studied on two pillars: quality characteristics (profitability, growth) and the value dispersion (implied vs. estimated growth) at given price. Once the stock enters the portfolio, it is periodically tested on these two parameters and the position is held as long as the investment passes the hurdle.
5. What is the average holding period of stocks in this fund?
There is no particular time horizon that we target before making the investment. All investments are periodically tested for their attractiveness vis-à-vis alternatives available in the market and as and when they fail to meet that hurdle, they are churned. This brings in an additional element of objectivity to the investment exercise.
6. What should an investor expect when investing in this fund?
The scheme is suitable for investors looking to invest in equities for a minimum period of three years and also aiming to claim tax benefits under Section 80C of the Income Tax Act.
7. What will you attribute the relatively superior performance of your fund to in recent years?
We believe it is largely attributable to our objective investment approach and effective risk management.
8. What is an ideal portfolio size for this fund?
While there is no set limit on number of stocks that we hold, we like to run a well-diversified equity portfolio of 60-70 stocks.