AMC Speak

Equity powerhouse takes a courageous call

Neelesh Surana, CIO-Equity, Mirae Asset India

2nd November 2016

In a nutshell

Mirae Asset is witnessing strong sales momentum backing years of consistent fund performance. Its on a major growth path now, having got distributor mindshare for its equity funds. When the going is great, it takes a lot of courage and clear headed thinking to take a call to shut off the tap on lumpsum inflows into your best selling fund. That's what Mirae Asset did a few days ago, when they temporarily shut off fresh lumpsum inflows into the Mirae Asset Emerging Bluechip Fund, to ensure that they continue serving existing investors in the fund well, and not dilute performance by taking in large inflows when valuations are less appealing from a near term perspective. Meanwhile, the newest kid on the block at Mirae - the Tax Saver Fund - has got off to a very promising start in its first year itself, offering distributors another winning product to consider in their clients' portfolios. Neelesh takes us through the rationale behind the bold move to shut off lumpsum inflows into their best selling fund, and also shares his perspectives on global and domestic market drivers which are influencing portfolio strategy at this equity powerhouse.

WF: What prompted you to shut fresh inflows into your midcap fund - Mirae Asset Emerging Bluechip Fund? It must have been a very tough call for a fund house that has now got strong sales momentum going for it, on the back of sustained performance.

Neelesh: Mirae Asset Emerging Bluechip fund has recently crossed Rs. 3000 crores in assets - the youngest fund based on inception history. It is among the top 10 in the category based on AUM, with much higher share of incremental flows of the midcap category. As the fund was getting disproportionately large inflows, and we thought it would be prudent to restrict large inflows in the interest of existing investors, thus, we have only restricted large lump sum inflows in the fund, while long term inflow through SIP and STP products continues up to maximum of 25000 per instalment. Please go through our addendum for more details.

Overall, we believe that the fund is scalable, and are also positive on the category returns over the long term. This move will help us consolidate, protect interest of existing investors, and improve longevity of the product.

WF: Are you looking at taking cash call and/or paying out a one-time large dividend to existing investors in this fund, if valuations are a concern and fresh deployment opportunities seem limited?

Neelesh: We continue to remain deployed in sync with our view of not generally taking cash calls. As regards to dividend, we have in the past maintained about 8% dividend yield on NAV consistently every fiscal.

The market offers decent opportunities from long-term viewpoint, but for that one needs to dig deeper to hunt for the same. As mentioned above, would like to reiterate that the fund partial closure is only for lumpy inflows, and it do not reflect lack of investment opportunities, or likely return in the long term

WF: Your youngest fund - the Mirae Asset Tax Saver - is turning out a very impressive performance in its very first year. What are some of the factors that are driving this top decile performance in this fund? In what ways, if any, is the strategy for this fund different from your other equity funds?

Click here to know more about percentiles and the colour codes

What do percentiles and their colours signify?

Fund performance is typically measured against benchmark (alpha) and against competition. Performance versus competition is measured through percentile scores - ie, what percentage of funds in the same category did this fund beat in the particular period?

If a fund's rank in a year was 6/25 it means that it stood 6th among a total of 25 funds in that category, in that period. This means 5 funds did better than this fund. In percentile terms, it stood at the 80th percentile - which means 20% of funds did better than this fund, in that particular period. If, in the next year, its rank was 11/26, it means 10 other funds out of a universe of 26 did better than this fund - or 38% of funds did better than this one. Its percentile score is therefore 62% - which signifies it beat 62% of competition.

Most fund managers aim to be in the top quartile (75 percentile or higher) while second quartile is also an acceptable outcome (beating 50 to 75% of competition). What is generally not acceptable is to be in the 3rd or 4th quartiles (beating less than 50% of competition). Accordingly, we have given colour codes aligned with how fund houses see their own percentile scores. Green colour signifies top quartile (percentile score of 75 and above), yellow or amber signifies second quartile (percentile scores of 50 to 74) and red signifies 3rd and 4th quartile performance. A simple visual inspection of colour codes can thus give you an idea of how often this fund has been in the top half of the table and how often it slips to the bottom half. A great fund performance is one which has only greens and yellows and no reds - admittedly a tall ask!

Neelesh: The basic approach of Mirae Asset Tax Saver will remains the same, i.e., to participate in reasonable quality business upto a reasonable valuation, and hold the same for an extended period of time. We will continue to have dsplined approach to investing, with focus on "quality up to a reasonable price". Compared to our other existing schemes, Tax Saver will be slightly more concentrated, and would have more flexibility within midcaps. We believe that this is an excellent category, given the inherent three year lock-in feature enables investors to have the right time frame, and mind frame while investing in equities.

WF: Performance of your flagship Mirae Asset India Opportunities Fund continues to be very consistent, in terms of alpha generation as well as vs peer group. What are some of the changes you have made in fund strategy during this calendar year, in response to the evolving situation on market valuations and underlying growth across sectors?

Click here to know more about percentiles and the colour codes

What do percentiles and their colours signify?

Fund performance is typically measured against benchmark (alpha) and against competition. Performance versus competition is measured through percentile scores - ie, what percentage of funds in the same category did this fund beat in the particular period?

If a fund's rank in a year was 6/25 it means that it stood 6th among a total of 25 funds in that category, in that period. This means 5 funds did better than this fund. In percentile terms, it stood at the 80th percentile - which means 20% of funds did better than this fund, in that particular period. If, in the next year, its rank was 11/26, it means 10 other funds out of a universe of 26 did better than this fund - or 38% of funds did better than this one. Its percentile score is therefore 62% - which signifies it beat 62% of competition.

Most fund managers aim to be in the top quartile (75 percentile or higher) while second quartile is also an acceptable outcome (beating 50 to 75% of competition). What is generally not acceptable is to be in the 3rd or 4th quartiles (beating less than 50% of competition). Accordingly, we have given colour codes aligned with how fund houses see their own percentile scores. Green colour signifies top quartile (percentile score of 75 and above), yellow or amber signifies second quartile (percentile scores of 50 to 74) and red signifies 3rd and 4th quartile performance. A simple visual inspection of colour codes can thus give you an idea of how often this fund has been in the top half of the table and how often it slips to the bottom half. A great fund performance is one which has only greens and yellows and no reds - admittedly a tall ask!

Neelesh: Mirae Asset India Opportunities Fund (our flagship multicap fund) has the flexibility to invest across market caps and themes and we have had a satisfactory 8 ½ years track record. For the last one year, we have been overweight on Financials, Consumer discretionary, and Oil sectors. At this time, we see value in some of the beaten down stocks within corporate banking, metals, etc. as there is case of reversion to mean in earnings. Overall, changes have been stock specific.

WF: What is your overall call on Indian equity markets from a 12-18 month perspective and what do you see as the key drivers from a medium term perspective?

Neelesh: We believe that the Indian economy is on the right track towards recovery given the significant improvement in macros like current account deficit, inflation, interest rates, etc. These coupled with concerted efforts by government to revive the investment cycle, benefits of decent monsoons and pay hike, will help revive the growth in corporate earnings, which has been muted for few years. India remains one of the few regions with structural long term growth drivers, and expects market returns to track earnings growth which is expected to revive.

WF: How concerned are you about global factors puncturing our bull market over the medium term - say over the next 12-18 months? What out of the various global factors at play represent a significant threat to the bull market, in your view?

Neelesh: We are witnessing an extended period where global aggregate demand is weak, and the central banks are worried about the deflationary forces. The recovery is uneven, and the same has impacted exports. However, long term drivers of India's GDP growth are more domestic oriented, i.e., potential in consumption, infrastructure and revival in domestic investment demand. To that extent, global factors could impair near term trends, but is unlikely to have meaningful impact over the long term growth. Also, base in exports is already low. In many categories Indian exports is more to do with market share gain. Overall, we are positive given India's growth, and the economy has sufficient buffers to withstand gradual US rate hikes. We believe that market returns, going forward, would hinge on the revival in earnings growthLarge part of earnings growth over the next two years will come from headwinds receding in some of the beaten down sectors like metals, corporate banks, etc. Revival in earnings growth along with low interest rates is positive for markets.

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