Whiteoak Mutual Fund was floated by former Goldman Sachs India Head of Research, Prashant Khemka. While Whiteoak started off with AIFs, it has recently forayed into mutual funds too. The fund has roped in Aashish Somaiya, formerly the CEO of Motilal Oswal AMC, as the CEO of Whiteoak Capital AMC. This week, we are covering a multi-cap fund NFO to be launched by Whiteoak Capital towards the end of August. The Whiteoak Capital Multi Cap Fund NFO that is a diversified fund that is designed to spread the risk across large caps, mid-caps, and small caps. This is additional diversification that investors get over and above the sectoral diversification that investors get in a typical mutual fund portfolio. As the name suggests, Whiteoak Capital Multi Cap Fund will be benchmarked to the Nifty 500 Index, but the TRI calculation for benchmarking will be done in the ratio of 50:25:25 for large caps, mid-caps, and small caps respectively. The fund manager not only has to select stocks across sectors but also across capitalizations. That calls for a classic bottom-up approach.
About the Whiteoak Capital Multi Cap Fund NFO
Whiteoak has predicated its active equity funds on a very simple principle, “Outsized returns can be earned over time by investing in Great Businesses at Attractive Valuations.” But, that is more at a philosophical level. How will the Whiteoak Capital Multi Cap Fund actually be structured in terms of its asset class mix and its portfolio mix. As per SEBI regulations, multi-cap funds have to be invested, at least 75% in equities. In addition, this must be divided across large caps at minimum 25%, mid-caps at minimum 25% and small caps at minimum 25%. The last 25% is where the fund manager has the leeway. Typically, most of the multi-cap funds go up to 50% in large caps and keep their exposure to mid-caps and small caps at 25% each. In the case of the Whiteoak Capital Multi Cap Fund, the idea is to have an exposure of 30% to 40% in large caps and the balance 60% to 70% in mid and small caps, which have the potential to generate alpha.
A quick word on what we understand by large caps, mid-caps, and small caps in this context? SEBI has standardized the definition of large cap, mid-caps, and small caps effective 2018 on the basis of market cap. Here is how it works. The list of stocks in the India listed universe are indexed descending on market cap. Then, the top 100 become large caps; stocks ranked from 101 to 250 become mid-caps; and stocks ranked 251 and beyond become small caps. In terms of market cap, large cap stocks will have market cap above Rs49,999-50,000 crore. Mid-caps will have market cap between Rs17,500 crore and Rs49,500 crore. The small caps would have a market cap range of less than Rs17,500 crore. This can be dynamic in reality.
Who should invest in the Whiteoak Capital Multi Cap Fund NFO
Whiteoak Capital Multi Cap Fund NFO is open for subscription to all eligible mutual fund investors who have completed their KYC and other formalities. However, from an advisory perspective, here is what you need to know.
With the backdrop of the above 5 points, investors can look to participate in the Whiteoak Capital Multi Cap Fund NFO.
Key highlights of the Whiteoak Capital Multi Cap Fund NFO
The Whiteoak Capital Multi Cap Fund NFO is an equity fund with a spread of the portfolio across large caps, mid-caps, and small caps. Here are the highlights of the NFO.
The fund managers for the Whiteoak Capital Multi Cap Fund will be Ramesh Mantri for the equity side, and he will be assisted by Trupti Agarwal. Piyush Baranwal will be the fund manager on the debt side while Shariq Merchant will be the fund manager for any overseas investments undertaken by the Whiteoak Capital Multi Cap Fund.
Why multi-cap funds can be the answer?
If you take a historic view of large cap, mid-cap, and small cap stocks over a longer horizon of 20 plus years, two things become clear. Firstly, different categories of funds have outperformed the market at different points of time. Secondly, it is tough to pin point when each category of funds will outperform. That creates the asset allocation dilemma. How to create a foolproof portfolio that can capture the advantages of large caps, mid-caps, and small caps? The answer is a multi-cap fund. Let us look at the actual returns narrative.
In the secular bull market from April 2004 to December 2007, large caps earned 51% CAGR, mid-caps 54% and small caps earned 67% CAG returns. However, if you look at the subsequent fall in the markets between December 2007 and December 2008, the large cap index fell the least, while the damage to the mid-caps and small caps saw a virtual carnage. If you look at the rally between December 2013 and January 2018, the large caps delivered 17% CAGR while mid-caps and small caps delivered around 30% CAGR. If you look at the latest narrow phase from December 2021 to December 2022, the large caps are up 5%, but small caps are down 3%. In short, small caps and mid-caps do very well in rising markets. However, it is the large caps that do better in falling markets or rangebound markets. That is where the idea of a multi-cap fund fits in.
Betting on styles and sectors; a futile exercise
As much as it looks exciting to bet on sectors and styles, it can be a futile exercise over the long run. Let us look at how styles dominated in the last 10 years. If you look at since 2007, the value style has been the top performer in 7 of these years. However, in 6 years, value style was the bottom performer. Low volatility has always been a median performer. Even index investing and momentum investing are all over the place. In short, it is tough to pinpoint on any one style that works consistently.
Let us turn to sectors. PSU banks were the bottom performers in 2015, 2019 and 2020. However, it was the top performer in 2022. Auto and FMCG, for all the great narratives, have never been among the top-2 performers in any of the last 12 years. Private banks and IT services have been at all ranks over the years. To top it all, the only sector to rank on top for 3 years out of the last 12 years is Real Estate. IT services and metals could only rank twice on the top in the last 12 years. The moral of the story is that since timing sectors and styles is so tough, as well create a combination. That is what the fund is.
Investment approach of Whiteoak Capital Multi Cap Fund
The fund will invest on 3 basic principles.
The fund is a good idea to participate in the broad scope of Indian markets with a bias towards the alpha generation potential of smaller stocks. On paper, the risk is higher. But, as empirical evidence shows, in the long run, this risk is worth it.
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