In a conversation with Outlook Money, Ashwani Kumar, Senior Fund Manager --Equity investments, Reliance Tax Saver explains the importance of stocks in portfolio. Excerpts:
1. What is the composition of the fund and its stock selection?
There are 55 stocks in the fund of total corpus of approximately Rs 4,300 crore. The top 30 stocks account for 80 per cent of the portfolio. On the sector composition, auto and capital goods account for 21 per cent each, while 18 per cent of the portfolio is in banks. Nearly 50 per cent of the portfolio is within BSE 100, while the rest is beyond BSE 100 universe, and almost all the stocks are within BSE 500. The weighted average market cap of the portfolio would be Rs 51,000 crore.
2. Does the three year lock-in help when managing these funds?
Certainly, as most of the investments are done with 24-36 months kind of perspective. True potential of companies typically plays out over the medium to long term, and that’s why a lock-in period in this fund really helps.
3. How does a stock enter the portfolio of this fund?
The focus is on investing in high quality companies which can grow earnings strongly over a period of 2-3 years. In addition, we look out for companies having competitive advantages. It could either be their brand or the technology that they use as differentiator, which could help them sustain earnings over a longer period.
4. What is the average holding period of stocks in this fund?
We have held stocks for very long periods of time, like over 5 years also. But I would say that the average holding period has been around 3 years. We generally do not take any short term bets, like for less than 12 months; even if the company is large-cap. As for mid-cap and small-cap space, the time frame is 3 to 5 years.
5. What should an investor expect when investing in this fund?
By investing in the fund, the investor would essentially get a very high quality differentiated portfolio. The fund is suitable for investors looking to make decent returns over a 3 year period. Investors have to essentially come in with a 3 to 5 years perspective, and not be guided by near-term performance. What may be good for long term may temporarily underperform in the near-term like 6-9 months. Actual economic performance and plus stock market performance should go hand-in-hand for a good performance. At present, we are quite positive on the steps that are being taken to bring about growth in India, and are fairly confident that India will return to high industrial and economic growth. In such a scenario, we believe the fund should do reasonably well over a 3 year-plus investment horizon.
6. What factors have led to the relatively superior performance of your fund in recent years?
In the last three years, particularly in the last 24 months, the companies we have invested into in the auto, auto parts, capital goods and some of the consumer segments have done very well. We also gained from some contrarian investments made in 2012-13 into MNCs, which were out of favour then and were available under Offer for Sale (OFS).
7. What is an ideal portfolio size for this fund?
The fund invests a significant portion in large caps. As I said earlier, nearly 50 per cent of the portfolio is within the BSE 100. The fund size would not really be a consideration as there are plenty of ideas in the large-cap space, and even beyond.
