retail investors: ETMarkets Fund Manager Talk: This Rs 3,000-cr money manager goes bottom-up to pick winners

Markets made history in November. How has your fund grown as markets probably touch October 2021 highs?
Indian equity markets (represented by frontline indices: Nifty 50, Sensex 30) have exhibited notable resilience amidst the evolving global macro headwinds and geopolitical situation in the last 1 year, validated by its superior performance when compared with other developed or emerging markets.

Largecaps which had significantly underperformed mid/smallcaps in 2021, have done relatively better in the last 1 year on Indian bourses.

However, performance across caps in the last 1 year has been quite divergent and was led by very few stocks or sectors (PSUs, banks, defence etc.).

As a result, active management and bottoms-up investing in the last 1 year has largely underperformed benchmarks.

At SageOne, we continue to receive allocations from our new and existing clients across our mid/small cap strategies (SCP & SSP) and structures (PMS & AIF) which has contributed to our AuM growth YoY as well.

How much AUM do you manage? Has the fund AUM grown in 2022?
Our present AuM is ~Rs 3,300 cr across our strategies and structures. As on Oct 2022, our AuM has witnessed YoY growth of ~20%, largely contributed by net positive fund flows from our existing and new clients across family offices, UHNI professionals and individuals.

What has been your portfolio strategy amid the volatility seen in the past 1 year?
As Morgan Housel puts it aptly, “Volatility is the price of admission in equities. The prize inside are superior returns. You have to pay the price to get returns”.

In our investment management journey of over a decade and experience of managing client funds across market cycles (ups and downs), we have always stuck to our investment discipline and core competencies of identifying/staying invested in superior growth businesses with sustainable competitive advantages over peers and available at fair/reasonable valuations.

Our investment teams’ constant on-the-ground research efforts, ability to understand and periodically monitor the businesses and its drivers, agile investment approach (stock entries/exits) led by assessment of evolving business environment of companies has contributed significantly in generating superior returns across SageOne portfolios in the long run.

Last 1 year has been no different for us and we continue to hone on our above investment approach.

Which sectors are you currently bullish on?
At SageOne, we follow a bottom-up investment approach and not a top-down. Therefore, businesses that are currently part of our portfolios and meeting our next 3–4-year earnings growth CAGR criteria are predominantly companies from building materials, real estate, manufacturing (niche pharma, specialty chemicals, industry consumables), and niche financials space.

Any new stocks which you added or sold off amid the rally we have seen from the June lows?
We would like to refrain from mentioning stock-specific names. Generally, 15-20% churns (new entries or exits) are witnessed in our portfolios every year.

These churns are driven by our assessment of portfolio companies’ fundamental outlook/valuations from that standpoint.

As SIP cross Rs 13000 cr per month – what does it tell you about the retail investor behaviour? Can we say that they have come off age?
Indian retail investors have emerged as a very powerful and resilient market participant in the last few years and specially post Covid 2019.

The undeterred SIP monthly figures have come has a big saviour for Indian equity markets by absorbing massive FII outflows in the recent times, thereby making FII flows an irrelevant data point which otherwise played a very important role for Indian markets.

Certainly, the Indian retail segment has come off age, a lot aware and a lot more mature. The regulatory bodies, investor forums and platforms have played a significant role in making this happen.

What is your take on the new-age tech companies? Are you comfortable adding them to the portfolio?
Our investment team has evaluated most of the new-age companies at the time of their IPO. Most of them did not qualify our internal investment criteria of either a quality business with sustainable/predictable competitive advantages or fair/reasonable valuations or both.

Therefore, we refrained from investing in any of these businesses in spite of a lot of noise around FOMO.

Our team continues to monitor the business performance of some of these companies and will take appropriate investment decisions if any of these companies fit our investment criteria.

How does your fund manage risk?
In equity investing, one cannot completely eradicate the risk of going wrong in-stock selection irrespective of the degree of risk management in place.

However, a sound risk management framework can reduce such errors and improve loss ratios over time. At SageOne, we have incorporated a risk management framework in our investment process which is time tested and has given us superior outcomes.

Our investment management team adheres to the defined framework on single stock level exposure in the portfolio, minimum or maximum stocks in a portfolio, maximum sector level exposure or a group level exposure which is adhered by our investment management team.

Liquidity of the underlying stock is also a very important criteria in our investment decision beyond our defined fundamental and valuation criteria.

So far, we have not had a single exit from our portfolio on account of any fraud or corporate governance issues.

If someone plans to put in say Rs 10 lakh now do they follow a staggered approach or a lump sum approach as markets are on verge of hitting highs?
At the current standpoint and assessing the market risk-reward payoff, it would be prudent for an individual to stagger the investment over a period of say 2-3 months.

However, this approach may not assure deployment at low prices over the next 2-3 months. Therefore, an individual’s equity asset allocation plan, cash flow frequency, and investment horizon should also be kept in mind while deciding the pace of deployment at any point in time.

What is the kind of cash level you are sitting on – to be deployed on dips?
At the present juncture, we have about 8-10% cash levels in our model portfolios. However, we have a few researched ideas already in our radar and could deploy these funds at an opportune time.

New investor funds received in our portfolios currently are deployed within 2-3 months.

A little about yourself and how you started your equity journey?
In my entire professional career of over 16 years so far, I have dealt with only one asset class – equity, which over the period has become my passion.

This journey started as an investment banker primarily on ECM coverage (IPOs, QIPs) which after 4 years changed its course to an equity sales role, building & heading a segment of professional clients for over 8 years (family offices, proprietary funds, investment managers) to finally leading SageOne, an investment management firm for over 3 years now.

These 16 years so far with such diverse exposure have been truly enriching and exciting for me. In hindsight, I have been really fortunate to get the opportunity to work with the right set of people who have contributed significantly in guiding me and honing my skills.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)