Widely read:
Anand Radhakrishnan, fund manager, Franklin India Taxshield, talks about having an optimum mix of large and mid/small cap stocks that can help the fund deliver superior risk adjusted returns across market cycles.
What is the investment strategy for the fund?
Franklin India Taxshield follows a diversified bottom-up stock picking approach when it comes to sector selection and market capitalization. The fund has not hesitated to pick up mid/ small cap ideas where we see favourable long term potential. The idea is to have an optimum mix of large and mid/small cap stocks that can help the fund deliver superior risk adjusted returns across market cycles. The fund also remains sector agnostic but has prudent limits on exposure to single sector.
What is included in the portfolio and what is avoided?
Though our investment style has an inherent growth bias we are not limited by external style classifications. A fair comment on our investment style would be to describe it as bottom-up, research based, and dynamic 'blend' of growth and value. Also, we follow a bottom-up approach to stock selection based on fundamental research with a medium to long term perspective and ignore momentum stocks. The parameters and factors used in evaluating a stock will vary depending on the specific business and the company's competitive position within a sector. However, we believe in using a combination of quantitative and qualitative factors to evaluate investment prospects of individual companies. The latter along with a deep understanding of the business and management have been key contributors to the successful performance of this Fund.
Our sectoral exposures are a derivative of the bottom-up stock selection process. At a broad level, we are positive on the improving domestic consumption and the financial services sector.
Tax planning funds have a different redemption pattern given the three year lock-in compared to the diversified equity schemes. How much does this factor play a role in fund management and investment? Does it have any bearing on cash allocation?
ELSS funds tend to have a lock-in period and investors should bear this in mind while committing funds. Investors have to bear in mind that while equity returns tend to be volatile over the short-term, the asset class has delivered superior risk-adjusted over a longer time horizon. Fund investments should be made in line with overall financial goal and risk appetite.
The three year lock-in period allows the fund manager to make stock choices without being distracted by inflows or outflows and ensure a sufficient incubation period for equity investments to deliver. The funds track record is a reflection of the success of the disciplined investment approach. We don't take undue risks just because of the 3-year lock in period and position the portfolio towards delivering over market cycles. As far as cash levels are concerned, our portfolios are typically fully invested and the cash exposure is only to meet liquidity needs and/or due to portfolio restructuring/ rebalancing. This is because our product portfolio comprises long only products - a product structure that by design forbids managers from taking cash calls.
What will you attribute the relative consistent performance of your fund in recent years?
Attributes for consistent performance:-
- Bottom-up stock winners in Auto & ancillaries, Ports & Pharma
- Underweight position in PSU Banks, Metals and Energy sector
- Avoiding in general lower quality and financially leveraged companies.
Any tactical miss you regret (not having, or not having enough or holding something) in your portfolio
Certain discretionary consumption plays in Auto, Consumer Durable segments have done very well and the fund missed to capitalize on those ideas well.
Please click here to read the analysis of this fund.
This article was originally published on June 06, 2016.
Disclaimer: This content is for information only and should not be considered investment advice or a recommendation.
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