Most equity-oriented funds invest in a sizeable portfolio of 45-60 stocks to achieve optimal diversification. However, the performance of a fund over a period is usually driven by a few selected stocks having higher weightage in the portfolio.
Though diversification is an important aspect of fund management, beyond a point diversification does not add much value to the portfolio. Notably, excluding the top 10-20 holdings, most stocks in an equity fund portfolio carry low weightage in the portfolio. Therefore, even when these stocks gain, they do not contribute much to the portfolio returns.
Fund managers of a focused fund aim to scrap out such stocks where the conviction is low and focus on a concentrated portfolio of stocks with high growth potential. The healthy performance showcased by focused funds over the past few years has attracted investors resulting in net positive inflows in the category.
Mahindra Manulife Focused Equity Yojana is one of the new entrants in the focused fund segment that will follow a multi-cap approach. With this the tally of focused fund schemes has reached 25. The scheme will focus on companies poised to see improvement in corporate performance on the back of economic recovery.
Being a focused fund, Mahindra Manulife Focused Equity Yojana can invest in a maximum number of 30 stocks, according to SEBI guidelines on mutual fund categorization, deploying a minimum 65% of its assets in equity & equity related instruments. Additionally, it can choose to define its own market cap concentration.
Mahindra Manulife Focused Equity Yojana is launched with an objective of providing generating long term capital appreciation by investing in a concentrated portfolio of equity & equity related instruments of maximum 30 companies across market capitalisation. However, there is no assurance or guarantee that the investment objective of the scheme will be achieved.
Table 1: Details of Mahindra Manulife Focused Equity Yojana
|Type||An open ended equity scheme investing in maximum 30 stocks across market caps||Category||Focused Fund|
|Investment Objective||To generate long term capital appreciation by investing in a concentrated portfolio of equity & equity related instruments of maximum 30 companies across market capitalisation. However, there can be no assurance that the investment objective of the Scheme will be achieved.|
|Min. Investment||Rs 1,000 and in multiples of Re 1 thereafter||Face Value||Rs 10/- per unit|
|Entry Load||Not Applicable||Exit Load||– An Exit Load of 1% is payable if Units are redeemed / switched-out upto 1 year from the date of allotment;
– Nil if Units are redeemed / switched-out after 1 year from the date of allotment
|Fund Manager||Mr Krishna Sanghavi||Benchmark Index||NSE 500 (Total Returns Index)|
|Issue Opens:||October 26, 2020||Issue Closes:||November 09, 2020|
(Source: Scheme Information Document)
Investment strategy – Mahindra Manulife Focused Equity Yojana
Mahindra Manulife Focused Equity Yojana will follow an active management style with a focus on creating a diversified portfolio of companies with a long term perspective. The scheme will follow a top-down approach to select sectors and a bottom-up approach to pick stocks across the sectors. Mahindra Manulife as fund house follows the GCMV process (Growth, Cashflow Management and Valuation filter) to identify high conviction stock ideas.
Under normal circumstances, Mahindra Manulife Focused Equity Yojana’s asset allocation pattern will be as under:
Table 2: Asset Allocation of Mahindra Manulife Focused Equity Yojana under normal circumstances
|Instruments||Indicative Allocation (% of assets)||Risk Profile|
|Equity and Equity related Securities*||65||100||High|
|Debt and Money Market Securities (including TREPS (Tri-Party Repo), Reverse Repo)||0||35||Low to Medium|
|Units issued by REITs &InvITs||0||10||Medium to High|
* Subject to overall limit of 30 stocks across market capitalization
(Source: Scheme Information Document)
The scheme will consider the following for the construction of focused fund portfolio of up to 30 stocks from across market caps:
- Domestic and global macro economic factors
- Stage of business cycle
- Absolute v/s relative valuation
- Assessment of portfolio weight based on liquidity and market cap
It will also consider other business factors like a sector’s future growth outlook, business outlook (priority to 1-3 years of growth), valuation of stock v/s future growth, and management capabilities and corporate governance.
Who will manage Mahindra Manulife Focused Equity Yojana?
Mahindra Manulife Focused Equity Yojana will be managed by Mr Krishna Saghavi.
Krishna Saghavi is the Chief Investment Officer – Equity at Mahindra Manulife Investment Management Pvt. Ltd. He has over 25 years of work experience of which around 12 years have been in mutual funds and around 8 years in life insurance. Previously, he was associated with Canara Robeco AMC, Kotak Mahindra AMC and Aviva Life Insurance Company.
Fund outlook -Mahindra Manulife Focused Equity Yojana
Focused funds invest in a concentrated portfolio of high conviction stocks backed by research. This strategy can help the fund deliver superior returns in the long run.
However, if for any reason, the fund manager’s stock/sector/market cap conviction does not pay off as expected, investors can suffer huge losses due to the concentrated nature of the portfolio.
Therefore, focused funds are high-risk high-return investment proposition. They are suitable only for long-term investors having high-risk appetite.
Unlike diversified equity funds, focused funds do not have the flexibility to increase the number of stocks in the portfolio beyond 30, which could prove to be a hurdle if the fund corpus size becomes too big.
One should have an investment time horizon of at least 5 to 7 years while investing in Mahindra Manulife Focused Equity Yojana.
This article first appeared on PersonalFN here