For most average investors, investing their money in a fund with a proven historical track record is a good start. The simple answer to this lies in the current state of the stock markets, where the difference between the best performing and the worst performing fund is fairly narrow. The reason for such an outcome is the current bull run, when it becomes difficult to differentiate between the good and the not so good fund.
Thus, it becomes pertinent to check the fund manager’s ability to manage the downside, when it occurs and also their ability to manage a fund with bigger assets because of an increase in money flows into it. It is evident that many a times, short-term performance may be driven by luck, but in the long run, wealth creation has always been driven and heavily influenced by the fund manager's skills.
Today onwards, we will be featuring interviews of eight of the finest money managers, who have repeatedly demonstrated their superior skills with consistent returns, within the defined investment framework of the funds they manage. As you evolve as a mutual fund investor, start assessing fund managers to invest with those who have proven their skills; after all as goes the saying—form is temporary, class is permanent.
Minimising risks and Maximising returns
What approach do you practice towards investing in the fund(s) you manage?
As a fund house, we are deeply convinced about investing in businesses that can withstand cycles and can deliver good returns to shareholders. Our focus is on identifying wealth-creating companies that are positioned well, have good quality management, experiencing sustainable growth and more importantly, have good governance practices that take into consideration the interests of minority shareholders. In simple terms, you can call it ‘stock picking’. We have a lot of qualitative filters that go into identifying such winners. We avoid momentum plays. During a bull market, a fund can achieve better performance through either increasing the risk profile (market beta) or through stock selection (alpha). The former could work during the rally, but is likely to result in sharp declines during the downturn. We avoid this approach and try to capture the potential through stock selection, which leads to consistency of returns across market cycles.
What is the one theme that you are bullish on now?
We find opportunities based on a bottom-up consideration of the growth, quality and sustainability aspects of each individual stock. As such, we find opportunities across multiple sectors resulting from the difference between the stock’s price and intrinsic value. That being said, we currently find a number of bottom–up opportunities in financials, consumer discretionary and high-quality domestic cyclicals.
One investing lesson you will never forget?
A fund manager’s job involves two essential parts – minimising risks and maximising returns. A structured process that instills discipline ensures the first part and the second part is a function of the individual ability to look at situations with fresh and different perspective so as to spot new opportunities or respond in a different manner. It is very tough to identify long-term winning ideas.
Also there is a lot of noise impacting the market and at times, it becomes difficult for a fund manager to remain focused. I guess we are all party to that crime some or the other time, but this is where a well-established process developed over the last 20 years or so comes to aid. One needs to have a highly disciplined approach when it comes to interpreting information and this helps in delivering consistent returns.
Anand Radhakrishnan, CIO – Equity, Franklin Templeton Investments, India
