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WF: How would you describe your personal investing style? What are your key beliefs and convictions that define your investing style?
Manish: GARP, bottom up with relative valuation can best describe my investing style. I believe that for a successful investment journey, it is imperative to have knowledge in areas like macroeconomics, economic history, management theory etc. apart from rigorous bottom up research and the likes. The other important point I believe in is developing a robust risk management framework. Along with this, maintaining discipline in valuations is critical. This is in light of experience that at several points in time, there may be random events which may or may not derail one's investment thesis.
WF: Some experts believe that each fund manager's flair lends itself best to a particular market segment or category of funds - example large cap specialist, mid cap specialist, contra specialist, value player etc. Do you subscribe to this notion of fund managers specializing in specific segments of the market? What are the pros and cons of such an approach, in your view?
Manish: I am of the view that horizontal investing skills (that cut across fund categories) such as bottom up research, risk management framework etc. are more important. However if a fund manager extensively manages one particular type of fund, then such a manager's vertical skills (related to that category alone) may become strong over time and will invariably be identified with that one particular style of investing in the mutual fund industry.
WF: It is often said that a fund manager's best lessons are learnt not from books, but from his own mistakes. What lessons has experience taught you, which you believe have helped shape you into the successful fund manager that you are now known as?
Manish: Experience has taught me that buying an overtly regulated sector and waiting for reforms to come by in such a space is foolhardy. Secondly, be careful on the changing trends in a particular sector. It can be a make or break moment for several companies in that space. And finally, growth prospectus for a company is not always infinite. Be careful of the limitations.
WF: You manage two of ICICI Pru's flagship schemes - Focused Bluechip and Balanced Advantage - both of which have stellar long term track records. What are the challenges and the opportunities in managing two large funds with very different mandates?
Manish: The advantage of managing both these products is that they have well defined mandates with distinct objectives. Focus Bluechip is clearly positioned as a large cap fund with limited sector deviation while Balanced Advantage Fund adheres to dynamic asset-allocation model with flexicap mandate which allows a wide universe of stocks.
In terms of challenges, it is only the bottom up research in each sector that makes a meaningful contribute to create alpha and in BAF the challenge is to strike a balance between high emphasis on downside protection while creating reasonable return over the market cycle.
WF: You manage over Rs. 30,000 crores of equity money - a sum that's larger than the equity book of most AMCs. How do you deal with the pressure of managing such a large amount of money, in two of the most tracked and most well owned funds?
Manish: The advantage we at ICICI Prudential AMC have is that our team is well experienced, stable and cohesive. Given the long duration of association with the market ensures that you are in tune with the research process which is a great asset for a fund manager. Additionally, being a part of the investment journey of both the funds over several years itself lends comfort to the fund manager which makes managing such large sums of money relatively easier.
Even though the fund size of ICICI Prudential Balanced Advantage Fund (BAF) has steadily increased over the years, the below chart clearly illustrates that rising AUM has not dented the alpha generation potential of the fund.
A similar case can be said about ICIC I Prudential Focused Bluechip Equity Fund...
WF: Some experts believe that as the quantum of money managed by a fund manager keeps increasing, his focus subconsciously starts shifting more towards risk management and less towards alpha generation. Is there some merit in this belief? How do you manage the tradeoff between risk and reward, especially when the stakes are so high?
Manish: Purely from empirical data, this does not appear to be true because in specific categories like largecap, flexicap etc. there are multiple schemes with large AUM which are ranking well in terms of performance against the entire category universe. We are of the school of thought which believes that size of the fund doesn't necessarily affect the risk management framework.
WF: Markets have commenced 2017 with a note of caution, on account of near term domestic headwinds and an uncertain global environment. What is your call on markets for 2017 and how are you positioning your portfolios to align with your overall thinking on markets, themes and sectors?
Manish: Nifty has been broadly flat for the last two years. We believe markets from hereon will be follow earnings which has been disappointing over the past several quarters. Going forward, low base of earnings, lower interest rates and brighter prospects of global growth would be the tailwinds for double digit earning for the next 2-3 years. Currently we don't believe a strong sector skew makes sense as very few sectors have either very bubble like or distress valuations. Since volatility is likely to be a reality even in 2017, we are recommending investors to opt for the volatility suite (dynamic asset allocation funds) of products such as ICICI Prudential Equity Income Fund, ICICI Prudential Balanced Advantage Fund, ICICI Prudential Balanced Fund and ICICI Prudential Dynamic Plan.
Also, largecaps is another space which holds promise given the underperformance when compared to small and midcaps over the last two to three years. Investors who wish to take exposure to the largecap category can consider investing in ICICI Prudential Focused Bluechip Equity Fund which is primarily a diversified large cap equity fund focused on the top 200 stocks by market capitalization.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
The information contained herein is only for the reading/understanding of the registered Advisors/Distributors and should not be circulated to investors/prospective investors. All data/information in this material is specific to a time and may or may not be relevant in future post issuance of this material. ICICI Prudential Asset Management Company Limited (the AMC) takes no responsibility of updating any data/information in this material from time to time. The AMC (including its affiliates), ICICI Prudential Mutual Fund (the Fund), ICICI Prudential Trust Limited (the Trust) and any of its officers, directors, personnel and employees, shall not liable for any loss, damage of any nature, including but not limited to direct, indirect, punitive, special, exemplary, consequential, as also any loss of profit in any way arising from the use of this material in any manner. The sector(s)/stock(s) mentioned in this communication do not constitute any recommendation of the same and ICICI Prudential Mutual Fund may or may not have any future position in these sector(s)/stock(s). Past performance may or may not be sustained in the future. Nothing contained in this document shall be construed to be an investment advise or an assurance of the benefits of investing in the any of the Schemes of the Fund. Recipient alone shall be fully responsible for any decision taken on the basis of this document.
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