Sector & Stock Allocation leads to Performance | Value Research Jayesh Shroff, fund manager, SBI Magnum Taxgain, says their stock selection is based on a philosophy that has worked for many years
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Sector & Stock Allocation leads to Performance

Jayesh Shroff, fund manager, SBI Magnum Taxgain, says their stock selection is based on a philosophy that has worked for many years

Jayesh Shroff, fund manager, SBI Magnum Taxgain, says that given the size of the fund, liquidity is an important criterion for stock selection.

Sector & Stock Allocation leads to Performance SBI Magnum Taxgain

What is the investment strategy for the fund?
The fund is predominantly a large-cap fund with some allocation to mid-caps. Large-caps are defined as the top 100 companies in terms of market cap. Sector allocation calls are taken on very few sectors. Considering the size of the fund, liquidity is an important criterion for stock selection. The stock selection in the Fund is based on following philosophy: Asset owners available at attractive valuations and Good and stable businesses with very good visibility of sustaining the current business momentum.

What is included in the portfolio and what is avoided?
The philosophy of the fund is to invest into stocks where the change at margin in terms of profitability, management, business dynamics, competitive intensity, etc. is positive. In terms of fund strategy, we focus a lot on consistency and long term orientation of returns and therefore do not buy into stocks with short term perspective. Thus stocks which offer much better scope of earning growth over a long period of time are the ones that we buy in the Fund and avoid short term trading bets. As of now, we are overweight private sector banks / NBFCs and underweight public sector banks. We are underweight metals and that underweight is covered by our overweight in capital goods. Apart from that we are also overweight pharmaceuticals and underweight consumer staples.

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?
As mentioned earlier, the lock in helps in long term orientation of the fund. We can buy into stocks and sectors offering good returns over a long period and also allows us flexibility not to react to react to short term news and unnecessarily churn the portfolio. In terms of cash, we in any case, don't believe in keeping too much cash in individual funds and therefore the lock in does not alter our cash allocation

What will you attribute the relative consistent performance of your fund in recent years?
We have followed the fund philosophy consistently over the years. Our asset allocation pattern of apprx. 75% large cap and 25% mid cap has also remained same over past so many years. Apart from that we have risk management limits in form of stock and sector deviations which protects downside for the fund. Our stock selection based on investment philosophy has worked beautifully over the years generating very good returns for the fund.

Any tactical miss you regret (not having, or not having enough or holding something) in your portfolio?
Of course, with the benefit of hindsight, there would have been few misses that one would regret. While we did participate in auto ancillary story, may be we could have been more aggressive there. Thus while there will be hits and misses in the fund, our sector allocation and stock selection has contributed to very good performance for the fund.

Please click here to read the analysis of this fund.


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