How different is managing large-cap funds in a bull market than in a crashing market?
Rising markets are more challenging because many mid- and small-sized companies grow faster than large companies. So, a large-cap fund often underperforms a mid-cap fund. Apples then get compared to oranges. It gets a bit difficult to justify our performance when investors compare it with mid-cap funds. In a falling market, large-cap funds fall less than mid-cap funds.
Typically, your funds have a higher portfolio turnover than some of their counterparts.
It’s not that high in my opinion. I follow a buy-and-hold strategy mostly. But I actively manage around 25-30% of the portfolio to benefit from emerging opportunities or change in circumstances.
Apart from reducing exposure to banking stocks, how has your portfolio changed since last year?
Exposure to banking is still sizeable because the sector benefits in a growing economy like India due to high borrowings. We have reduced our exposure to defensive sectors and switched to domestic cyclicals such as infrastructure and capital goods. Apart from tactically playing the metals space, our exposure to auto has gone up on the back of string revival of demand in the sector. Our mid-cap allocation has gone up due to attractive valuations.
Your fund size crossed the Rs1,000 crore mark for the first time in August, up from just Rs345 crore a year back (October 2008). But doesn’t a fat fund get sluggish?
Size is not a problem for a fund with a large-cap bias until it reaches, say, a billion dollars. Over the past three years, Birla Sun Life Frontline Equity fund has more than quadrupled in size and we would be comfortable managing any additional inflows without affecting the performance. For some mid-cap exposures in our fund, we can always increase the number of scrips to ensure that risks are adequately spread out.
Large number of scrips (typically around 60) has always been your style, hasn’t it?
I think 50-60 scrips is a good number to have. You could hold a smaller number too, but if I find two scrips offering the same risk-adjusted potential, I’d spilt my money in both of them. You could call that a lack in conviction, but I think it’s risk mitigation. Typically, during a bull market, we increase the number of scrips because a recovery is normally seen across market segments. In falling markets, we reduce the number of scrips and become more focused on companies with clear earnings visibility.