In an interview with Outlook Money, Soumendra Nath Lahiri, Chief Investment Officer, L&T Investment Management, shares his investment mantra, what has worked for his fund, and more. Excerpts:
What is the composition of the fund and stock selection?
In L&T India Prudence Fund, we look to maintain a steady asset allocation between equity and debt with about 65-75 per cent of its net assets in equity and equity related securities and 25-35 per cent in debt and money market instruments.
In terms of stock selection, we look out for strong franchises, with durable moats run by managements with high integrity and competence. We overlay this with the G.E.M. model, which is our proprietary investment process, involving Idea Generation, Evaluation and Manufacturing and Monitoring of portfolio. It rigorously examines an investment opportunity based on multiple parameters such as management track record, corporate governance, growth prospects, profitability, valuations, etc. before considering it for inclusion in the portfolio.
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What is the investment universe for this fund?
Since the fund does not have any sector or market cap restrictions, it can invest across the spectrum. However, each stock, before getting included in the portfolio goes through our proprietary investment model (G.E.M).
What is the average holding period of stocks?
It depends on case to case basis. We typically buy a stock with at least 1-2 year investment horizon. However, in a few situations, we may hold a stock for a shorter period if (a) the valuation of the stock moves beyond our comfort level, (b) there is better alternative investment opportunity, (c) if there are any changes in investment assumptions that could impact our investment thesis, etc.
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What should an investor expect when investing in this fund?
The fund could help investors capitalise on the growth potential of equities as it invests 65-75 per cent of the portfolio in equities and at the same time also focuses on maintaining a higher level of stability compared to pure equity funds due to its debt allocation.
Thus, the fund aims to strike a balance between the two asset classes by maintaining a disciplined asset allocation approach.
The fund’s active stock selection approach could also help in delivering alpha over the medium to long term. I believe this fund could be one of the investment avenues for investors looking to earn risk adjusted performance over the long term.
What will you attribute the relatively superior performance of your fund to in recent years?
Instead of chasing trends, we believe in taking a relatively longer term view while taking investment decisions and that has also helped us deliver results, not just in terms of returns but also in terms of risk adjusted returns.
What is an ideal portfolio size for this fund?
As mentioned earlier, this fund does not have any market cap bias and has complete flexibility to invest across the market spectrum, be it large cap, mid cap or small cap. As a result, I believe size is not much of a concern for this fund and given the fund’s current size, we do not see any challenge at least from a medium term perspective.
