The number of stocks is around 25 (1-year average) with each grabbing a substantial allocation; no long tail of insignificant allocations.
With a small corpus, it would not be surprising to see the fund manager dabble in smaller stocks, churn rapidly or take concentrated bets. Not so. Since launch, only 57 stocks have appeared in the fund’s portfolio and just six have remained for five months or less.
The fund’s strategy is value driven and process oriented. Kumar follows a bottom-up stock picking approach with an eye on the daily average trading volume of the stock. ‘Popular’ stocks are often given a miss.
The fund has a universe from which it makes its picks. Buy and sell limits are set for each of them. Only stocks that fall within the predetermined purchase price are picked up. Once a sell limit is reached, the team re-evaluates the target and if they do not find value in holding on at that price, they exit the stock. “Our buying and selling decisions are never based on the market. We sell only if the stock is overpriced, we have a better opportunity or there is a change in our view of management,” says Kumar. “And if we see no opportunity, irrespective of where the market is believed to be headed, we hold cash. If the prices, of the stocks in our universe, are close to buy levels or approaching it, we reduce our cash exposure. If the market is on the rise or there is substantial choppiness, we sell and increase our cash level.”
That’s why the fund often has substantial cash allocations during market run ups. It would also explain why in 2008, the cash and debt exposure never exceeded 5 per cent. Still, it was amongst the least hit in its category that year - a clear indication of its conservative stock picking technique.
What you will find here is a value based, diversified, liquid portfolio. The fund’s style will ensure periods of comparatively lower performance when speculative growth stocks are calling the shots. But in the three- and five-year periods (January 31, 2012), it is among the category’s top performer.
This article was originally published on February 27, 2012.
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