Is Concentration of Invesco India Focused 20 Equity Fund a Risk Worth Taking?

September 11, 2020 | by Aditi Murkute

Mutual Funds

Several fund houses are of the opinion that considering the recent corrections in the market, there is ample opportunity to do value buying. And if done with a focused approach, it will surely reward investors in the long run.

Hence Invesco Mutual Fund launched Invesco India Focused 20 Equity Fund (IIF20EF) that will invest in 20 stocks across market cap with an aim to generate alpha from a concentrated portfolio. The fund manager will follow a process-driven approach to filter the best investment ideas and contain the downside risk.

Besides the fund house is of the view that a focused fund strategy is worthy of consideration in all time periods because of its inherent nature of targeting high conviction ideas as these funds typically invest in few stocks in a concentrated manner.

Also, the unprecedented challenges and high stock market volatility we face now calls for a greater focus on stock selection with extraordinary vigil and a meticulous approach. This is the need of the hour to build a sound portfolio.

On the risk-return matrix, IIF20EF, owing to its focussed approach when investing in equities, would be a very high-risk, very high-return investment proposition, although the fund holds the flexibility to invest across market capitalisation segments and is sector agonistic.

[Read:  Why Comparing Returns to Risk Is More Meaningful!]

So, IIF20EF is suitable for investors with a stomach for very high risk and an investment time horizon of at least 7-8 years while seeking capital appreciation.

Table 1: Details of Invesco India Focused 20 Equity Fund

Type	An open-ended equity scheme investing in maximum 20 stocks across market capitalization (i.e. Multicap)	Category	Focused Fund
Investment Objective	To generate capital appreciation by investing in upto 20 stocks across market capitalization. However, there is no assurance or guarantee that the investment objective of the Scheme will be achieved. The Scheme does not assure or guarantee any returns.
Min. Investment	Rs 1,000 and in multiples of Re 1 thereafter	Face Value	Rs 10 per unit
Plans	Regular Direct	Options	Growth* Dividend Re-investment Facility* Pay-out Facility *Default option
Entry Load	Nil	Exit Load	if units are redeemed/switched out within 1 year from the date of allotment: if upto 10% of units allotted are redeemed/switched out – Nil any redemption / switch-out of units in excess of 10% of units allotted – 1%. if units are redeemed/switched out after 1 year from the date of allotment, no exit load is payable.
Fund Manager	Mr Taher Badshah	Benchmark Index	S&P BSE 500 TRI
Issue Opens	September 9, 2020	Issue Closes	September 23, 2020

(Source: Scheme Information Document)

How will the scheme allocate its assets?

Under normal circumstances, the scheme’s asset allocation will be as under:

Table 2: IIF20EF’s Asset Allocation

Instruments	Indicative Allocations (% of total assets)		Risk Profile(High/ Medium/ Low)
	Minimum	Maximum
Equity & Equity Related Instruments	65	100	High
Debt & Money Market Instruments	0	35	Low to Medium
Units issued by REITs and InvITs	0	10	Medium to High

(Source: Scheme Information Document)

What is the Investment Strategy?

The Scheme seeks to generate capital appreciation from a concentrated portfolio of up to 20 stocks, which may result in higher risk. The Scheme will adopt a multi-cap investment approach with a flexibility to invest across large, mid, and small cap companies.

The stock selection will be guided by their investment philosophy and proprietary stock categorization framework. Their process driven approach and categorization framework will assist in filtering the high conviction investment ideas and contain the downside risk. The Scheme will adopt a fully invested approach comprising of both growth and value stocks.

Who will manage the Invesco India 20 Focused Equity Fund?

Mr Taher Badshah will be the fund manager managing the scheme. He holds a B.E. (Electronics) degree followed by MMS (Finance) from Mumbai University.

Mr Badshah has more than 26 years of experience in the Financial Service Industry. He has worked with Kotak Investment Advisors Ltd. as a Fund Manager for 3 years, Motilal Oswal Asset Management Company Ltd. as Senior Vice President and was the Head of Equities for 6.5 years before joining Invesco Asset Management (India) Pvt.  Ltd. in January 2017.

Some of the other funds managed by Mr Badshah at the Invesco AMC include Invesco India Multi-cap Fund, Invesco India Dynamic Equity Fund, Invesco India Contra Fund, Invesco India Growth Opportunities Fund, Invesco India Smallcap Fund and Invesco India Equity & Bond Fund.

Table 3: Performance table of schemes managed by Mr Taher

Scheme Name	Managing Since	Benchmark name	Scheme Returns (%)	Benchmark Returns(%)
Invesco India Contra Fund	Jan-17	S&P BSE 500 – TRI	11.49	8.17
Invesco India Dynamic Equity Fund		CRISIL Hybrid 35+65 – Aggressive Index	7.55	9.14
Invesco India Growth Opp Fund		S&P BSE 250 LargeMidCap 65:35 Index – TRI	10.68	8.40
Invesco India Multicap Fund		S&P BSE AllCap – TRI	6.71	7.75
Invesco India Equity & Bond Fund	Jul-18	CRISIL Hybrid 35+65 – Aggressive Index	2.51	5.04
Invesco India Smallcap Fund	Nov-18	S&P BSE 250 Small Cap – TRI	11.82	-6.23

Data as on September 10, 2020
(Source: ACE MF; PersonalFN Research)

As seen above some of the schemes managed by Mr Taher have outperformed the respective benchmark index. This does provide investors some confidence towards his fund management expertise.

The outlook for Invesco India 20 Focused Equity Fund:

On evaluating II20FEF’s investment objective and strategy, it is evident that the fortunes of the fund will be closely linked to a maximum of 20 stocks held in the portfolio. The stock selection will be guided by the investment philosophy and proprietary stock categorization framework. It will have a Multicap portfolio with flexibility to move across market cap bands and will be style neutral.

The fund will have a sizeable allocation to each stock idea, yet maintain an equilibrium between conviction and diversification. While diversification across market capitalisation segments and stock selection with a bottom-up approach remain the fundamental strategy, how the fund managers ultimately constructs the portfolio remains to be seen.

Current times of volatility does offer value buying opportunities in the small-cap and mid-cap segments due to market corrections. Though the large-cap segment witnessed a downfall, however it comprises of large blue-chip companies with strong balance sheets and proven track records.

So, while constructing the portfolio with the aim of diversification, a dominant allocation to large-cap can offer stability to the investment portfolio of the Invesco India Focused 20 Equity Fund and could help ride the wave of short-term volatility to a certain extent.

Recent pandemic lockdown has amplified the pressure and dampened corporate earnings. Hence, the impact of corporate earnings on your mutual fund portfolio hinges on the portfolio characteristics of the schemes you hold in your portfolio.

So the fortune of the fund will be closely linked to a maximum of 20 stocks held in the portfolio (multi cap) that are managed by fund manager; how they deal with risk factors to achieve the stated objective is crucial.

This article first appeared on PersonalFN here