Focus on large-cap stocks key to stable returns

In an interview with Outlook Money, Mahesh Patil, Fund Manager, Birla Sun Life Frontline Equity, talks about attribution of Fund's consistent superior performance to the disciplined strategy it follows. Excerpts:

What is the investment approach of this fund?

BSL Frontline Equity Fund (FEF) is a diversified equity fund that invests across sectors in the large-cap companies (top 100 companies by market cap). It seeks to maintain its sectoral weightage within a tight range of the sectoral allocation of its benchmark index (BSE 200). It avoids taking large bets at the stock level (lower active weights) thereby reducing the risk and emphasising on beating the index consistently by a reasonable margin. The fund’s core portfolio (about 70 per cent) constitutes long-term holdings which are stable in nature whereas the balance could be tactical bets depending on the short-term opportunities.

When do stocks enter and exit the scheme?

The fund follows a bottom-up approach of stock selection and looks at factors such as quality of management, growth potential, reasonable valuations, sectoral dynamics, etc., while deciding on the stocks. Similarly when the stock fundamentals change adversely or when the target levels are achieved then a decision on exiting a particular stock or stocks is made.

Over a 10-year period this fund’s returns are about 14.5 per cent; what has resulted in such a superior performance?

Fund’s consistent superior performance should be attributed to the disciplined investment strategy it follows. Identification of key trends prevailing in the market and the investment approach has helped the fund beat its benchmark by 5 per cent (annualised basis) over a 10-year period across business cycles.

What stocks do you avoid?

BSL Frontline Equity Fund avoids companies which have corporate governance issues or businesses which have weak links that can impact the income generating ability of the stock are avoided, thereby protecting the interest of the investors.

Given about the 70 stock portfolio that this fund has; how do you manage it?

Since it’s a diversified fund, it has exposure towards various sectors. A dedicated team of research analysts who are constantly tracking stocks under their coverage from various sectors help in evaluating an investment decision while sticking to the investment strategy of the scheme. Analysts contribute with their sector expertise and make it easier to manage the portfolio. Continuous interactions with the management of the companies help in staying abreast of current happenings and overall it helps in looking at a larger investment picture.

What is your advice to investors in this fund?

Investors seeking long-term capital appreciation from investment spread across sectors should invest in the BSL Frontline Equity Fund. Since this fund focuses on large-cap companies, the investors can expect stable returns over long term with consistent outperformance over benchmark of about 3-4 per cent.

olmdesk@outlookindia.com