A Smart Jockey

Kenneth Andrade, CIO, IDFC Mutual Fund, is regarded as an excellent stock picker, specially in the mid- and small-cap space. When asked how he feels about that label, a grin is all you get. Despite 18 years of experience backing him, his down-to-earth attitude makes for an interesting interaction. Here he discusses his funds in detail with Larissa Fernand and explains what he looks for in a mid-cap stock. There are two funds in your portfolio that do not impress by way of 1-year performance; the India GDP Growth fund and the Strategic Sector fund. Can you explain how you construct their portfolios? Both these products are of recent origin. The India GDP Growth fund was launched in February 2009. The allocation of this fund is related to the growth of the entire GDP. We look at the break-up that Agriculture, Services and Industry has to the country's GDP. And then we take a factor of the forecasted growth and build the portfolio accordingly. From the very start, we have closely stuck to the mandate. The Strategic Sector fund was launched in the latter part of 2008 with the mandate to have 50 per cent into one sector while the other part of the portfolio would be diversified equity. The portfolio has been constructed with a large cap bias. So what has been the reason for the low performance numbers? Given the limited time that the GDP Growth fund and the Strategic Sector fund have been in existence, it's a little premature to talk about their performance. Still, if they have lagged in performance it was roughly during the period between March and June 2009. We were reasonably defensive during the period and maintained a low beta portfolio during that time frame. Though we rectified that towards the end of the calendar year, the stand that we took initially is showing up in all performances. To break it down further, the India GDP Growth fund has got three large components, like I mentioned earlier. Around 8 per cent goes to Agriculture, Services would be around 70 per cent and the balance would be Industry. So a large component of the portfolio is skewed towards Services. Within that a lot of oil marketing companies made an appearance. That has not been a demonstrable part of the entire capital appreciation that has taken place. The Strategic Sector Fund will have half the portfolio in one single sector, the other 50 per cent will function like a diversified equity fund. That single sector can vary depending on the fund manager's call. In November 2009, the sector was changed to Banking from Energy. Again, in the Oil and Gas component we held oil marketing companies which have not performed very well. Then you basically you got your calls wrong. We underestimated the risk appetite in the system. The idea is not about making a market call because we believe in being fully invested. The point is that when we change the characteristics of the portfolio, it sometimes does not perform in line with the market. If you track us right through the cycle in all our portfolios, including the Small and Mid Cap fund which was launched in February 2008, we largely got it right into March 2009. So we captured the entire cycle upwards and downwards. During this time we executed flawlessly. Between April and July 2009 we had a tough period. Since then, we got on track. What did you do to get back on track? We looked at all the portfolios and the gaps that were leading to the underperformance and filled them up accordingly. We moved