Sadanand Shetty, VP & Sr Fund Manager - Equity, Taurus Mutual Fund brings with him 16 years of work experience which he has acquired by working with reputed financial institutions across India. At Taurus Mutual Fund manages Taurus Tax Shield, Taurus Discovery Fund and Taurus Bonanza Fund. He has worked with Kotak Securities Ltd. as VP & Portfolio Manager – Equity for 5 years 8 months, SocGen as Institutional Equities for 4 years, Newscorp Owned Indya.com Pvt. Ltd. as Manager - Investment Research for 2 years, Principal Capital Markets Ltd. as Vice President - Investments for 2 years and Capital Markets Publishers Pvt. Ltd. as an Analyst for 3 years.
Taurus Mutual Fund was amongst the first few private sector Mutual Funds registered with SEBI. It was constituted as a Trust on August 20, 1993 in accordance with the provisions of the Indian Trusts Act, 1882. Taurus Mutual Fund has established its presence across demographics of the country. With branches in top 13 cities and representative in smaller cities, Taurus Mutual Fund's distribution network is strongly supported by more than 4000 outlets of business associates. Taurus Mutual Fund offers investment solutions for all segment of the society. With 5 Equity oriented schemes, 4 Debt based schemes and an Equity Linked Savings Scheme, in the open ended product basket, Taurus Mutual Fund continuously strives to strengthen its offerings by introducing researched and innovative schemes. Taurus Ethical Fund launched recently is the first of its kind actively managed funds in the country. Taurus Tax Shield has outperformed its benchmark index across all time frames and both Taurus Ultra Short Term Bond Fund and Taurus Liquid Fund on the debt side has been given the highest rating of AAAf by CRISIL.
Replying to Anil Mascarenhas of IIFL, Sadanand Shetty says, "Periodic review and corrective action is important to get the optimal returns from the portfolio."
Brief us about Taurus funds’ performance.
Taurus as a Fund House has put up a consistent performance, with funds to cater to match all investment objectives. Amongst our champion funds, Taurus Tax Shield is the top performer in Tax Savings category, for which it was awarded the Best Equity Tax Planning by Business World Best Mutual Fund Awards. Taurus infrastructure Fund with 141.36% absolute returns between March'09 and March'10 is surely a good bet even today with renewed Government thrust on the infrastructure sector .Taurus Ethical Fund has completed a year and has given returns in excess of 100% since inception. Besides these returns, Taurus Tax Shield, Taurus Ethical Fund and Taurus Starshare have distributed regular dividends to the investors.
What are the new offerings in the pipeline?
India will remain one of the most attractive investment destinations in the world. Over the next two years there will be several large Indian companies who will be reporting revenues over US$5bn and growing at more than 20% rate. Large Niifty companies will have to deliver such growth rate if India has to achieve its target 8% Plus growth objective. We are launching index fund to capture this growth. Taurus Nifty Index Fund will provide that opportunity to all the investors.
Which are the sectors you are bullish and bearish?
We are positive on Banking, Consumer, Industrial, Healthcare and Oil and Gas traditionally these are sector who lead the full market /economic recovery. We are underweight on Cement, metals, telecom.
What is your approach towards investing ? Any particular fund manager you are inspired by?
I prefer looking at overall macro (Domestic and International) situation that would prevail in medium to long term. In an economic environment that is as dynamic as current one I would like to be flexible in my approach to building portfolio. My preference would remain for large cap bellwether companies as core holding in large cap portfolio, who has demonstrated ability to sustain and grow the organization in varying business and economic and political cycles. I like companies that demonstrate higher growth without diluting too much of equity.
I have observed and influenced by several domestic stalwarts from institutional /non institutional and also from proprietary investment managers. You keep learning every moment in this market. I have my own leanings since the time I have started my career.
Should investors choose a fund or a fund manager?
It’s better to look for optimal mix of both while taking investment decisions.
Picking a fund that performed the best in the most recent time period often leads to a predictable trap of buying high and selling low. What is your advice?
I do not necessarily agree with this though it may be true in some cases. Good performance by a fund, by itself is not a critical parameter to make an investment decision. However, good performance that comes from a well defined process, an ability to see trends early and spot winners while in general sticking to the investment mandate are things that hold importance in any market. Hence if the good performance also comes with other points, it can be an important indicator to pick a fund.
Do mutual fund managers usually invest their own money in the fund?
It’s all about individual decisions. Fund management is also about convictions and belief on the story that you buy in your portfolio, I don’t see any reasons why one should invest in his own fund within internal guidelines.
Do you find investors remaining faithful to a fund even when it underperforms?
In our experience, several investors do take a longer term call which is what we as fund managers like to see. As you know, in some cases, there could be a reason for the underperformance which the investor must take note of. If it happens to be a one-off then the investor is better off staying invested in the fund.
However, at times, there could be issues such as a change in the fund manager or an inability of a thematic fund to perform in all situations. There can even be specific situations where the success of a fund can go against it let me explain a successful small caps fund could do well with a corpus for a few hundred crores—but its ability to do well with assets of a few thousand crores change. As you know, small stocks offer limited float, liquidity etc and the fund manager cannot take the desired exposure of a smaller company as he can with a smaller fund.
What are the risk factors an investor needs to check before investing in a mutual fund?
We would advise the following:
- Do not try to jump on a sector specific/ thematic fund because that may be the flavor of the season. Some exposure to such funds is good—but look at a mix of funds where you invest in diversified funds as well as sector specific funds
- Be clear of your investment objectives and investment horizon when you invest. Assess how the fund can meet those, and the fund’s track record in meeting those.
- Do not invest everything at one point in time. Systematic Investment Plans (SIPs) are known to work best for an investor, and explore how best you can use these.
What are the sources of information for most fund managers?
Brokerage houses that cover stocks with their dedicated sector analysts, economists and strategists remain the primary sources of information. Over the years, fund managers develop their own network of relationships with corporates, intermediaries, analysts and peer groups in the industry. The last one decade we have also witnessed an explosion of various forms of media that started delivering business news. All this can be harnessed in meaningful way to optimize the returns within the regulatory framework.
Given the ever changing environment do you think retail investors need to rebalance their portfolio very often?
A good mutual fund will re-align or de-risk portfolio by responding to various challenges in the market. Portfolio betas can change with appropriate allocation to sectors in a changing market environment. Market has tendency to overshoot or undershoot the underlying fundamentals, at various point of time. A good fund manager will take advantages for such scenario as he is better equipped to judge fundamentals and valuations of portfolio companies this knowledge helps in timing the market. Risk management remains one of the key elements of portfolio management. It is advisable for investors to leave that judgment to MF mangers. Significance of Buy and Hold strategy depends upon the portfolio mandate.
Your views on timing the market and the Buy and Hold strategy?
Buy and Hold Strategy is good, in growth market but that does not mean one should take their eye off from the stocks and sectors in the portfolio. Periodic review and corrective action is important to get the optimal returns from the portfolio.
Do you advice the fund of funds approach?
Fund-of-funds are good for those investors who do not wish to make the choice of selecting funds and let the specialized manager of the fund of funds do it for them
Some parameters for investing in a fund-of-funds are:
- Look closely at the cost structure…as fund-of-funds potentially can have multi-level costs.
- Check out if the universe of funds targeted is large enough; it may not be good to stay restricted to a single fund house
- Understand the methodology/ process used to select funds, and how often this is reviewed.
Do you advocate rupee-cost averaging? What about the expense ratio?
Rupee cost averaging is very important, and is proven to work well for investors. Firstly, the investor gets in to a disciplined habit of putting away a definite amount for investment periodically (say every month)
Secondly, you do not need to worry about timing the market; you invest typically in every part of market cycle
Thirdly, you effectively buy more units for the same investment amount when prices are down (and the NAV is consequently lower)—which is very good for the investor.
What would you say is the advantage in investing in a mutual fund?
Globally, over a long period of time, investing in mutual funds has proved to be effective and among the best alternatives to put your money in the stock markets. In India, it is also tax effective to do so.
An average investor is not in the best position to invest in stocks directly as one need to understand major drivers behind a stock’s performance which can be difficult as well as risky for an unsophisticated investor. He is better off trusting a specialized fund manager who has resources, access to management teams, ability to assess risks, interpret news and structure appropriate portfolios from time to time.
The Sharpe ratio is said to be a bit of a blunt instrument to measure risk-adjusted returns. How should an investor evaluate a mutual fund?
Sharpe Ratio tells you the excess return you have got for every unit of extra risk you have taken. I like this ratio and have related well to this over a number of years. I have a sort of a bias or preference for this measure.
Jensen Alpha gives you the excess return of your portfolio over the expected theoretical return you should have got. Frankly, it is a good measure too, but I find it at times a bit academic. It is a good tool to compare portfolios.
Treynor is a more complex ratio, which is a bit of a variation of Sharpe ratio though at times I do feel it may not adjust very well for volatility though it takes market risk in to account well.
Over time, the Indian markets will see fund managers being more aware of these measures of performance and relate better to these.
Your advice to mutual fund investors?
To summarize what I have said above:
- Understand you investment needs and objectives well and try to develop an investment plan within that
- Invest some time in picking the appropriate funds for yourself. Do take the help of advisors, distributors to do this.
- Try and use a disciplined approach, such as using Rupee cost averaging to invest in mutual funds.
- Do not get swayed by short term themes that do well over extremely short periods of time
What impact is the current Euro crisis having on the industry in general and retail investments in particular?
India exposure to some of the crisis countries (PIIGS) are limited in nature. These countries contributes less than 5% of India’ s export basket today and less than 2% to our FDI kitty. To that extent impact is limited. Federal regulators are trying to limit the contagious impact of current crisis to other EU countries. Our banking systems continued to remain strong and exposure to these markets are very limited. Overall global impact would be primarily on currency as we have seen that in recent times. There will be corporate and sector specific impact for the companies those who are exposed to trade and currency to EU and PIIGs countries.
To what extent can India be isolated or de-linked from the current crisis?
Globally financial market are inter linked and rapid flow of money impact various asset classes. We have witnessed that post collapse of Lehman Brothers in India. Changing risk appetite causes volatility in flow of funds. Our recent past shows that these are temporary in nature unless backed by fundamentals. Smart money will always chase growth and India is one of the fastest growth market in the world today.
Earlier, it was easier to assume that if there is trouble in other parts of the world, the funds may chase a growth story like India. What do ground realities suggest?
India’s growth story and attractiveness is independent of crisis in other part of the world. The money that we attract today is on our own merit. We are talking about absolute GDP growth and Corporate earnings that would continuous to remain point of attraction for global asset managers.
Have faith in Indian equities. Volatility and short term fluctuations are derivates of greed and fears. Markets performances are dependent on underlying and sustained growth of the economy. India is today on the growth path with clear focus on fiscal prudence by the policy makers. Corporate India is growing with unbridled confidence. Large part of the growth is coming from domestic consumption besides India has favorable demographic situations. Country will witness higher asset allocation from global asset manager. There is reason to remain bullish and optimistic for Indian equities.
Your view on the economy, inflation, dollar, crude and gold?
Things are getting better for economy, headwinds of last few quarter is subsiding today, we have cushion to the Govt on public borrowing side as robust collection on 3G and Broad band wireless help in managing fiscal deficit. We expect RBI to have do wish stance on the interest rate and approach measured rate of hike for interest rate. Crude is expect to remain soft till full scale global recovery and gold will remain firm if not scale up sharply from here onwards.