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Going where opportunity lies

The scheme does not have any sector or capitalization bias and looks to harness opportunities across the market spectrum, says Soumendra Nath Lahiri, Fund Manager, L&T Tax Advantage Fund

Given the typical profile of the investors in this fund, we do not make very aggressive allocation to mid and small cap stocks in the fund. This did go against us especially in 2014-15 when small and mid cap stocks did extremely well and many of our peers had high exposure to small and midcap stocks which helped them to outperform, says Soumendra Nath Lahiri. fund manager, L&T Tax Advantage Fund.

No aggressive cash calls

What is the investment strategy for the fund?
L&T Tax Advantage Fund is a diversified equity fund with a flexible, go-anywhere approach. The scheme does not have any sector or capitalization bias and looks to harness opportunities across the market spectrum. The scheme looks to maintain a well-diversified portfolio spread across sectors and stocks. The focus is on owning fundamentally strong and scalable businesses with good management track record, at reasonable valuations. The fund has outperformed its benchmark index across all time periods, highlighting the role of active fund management and also the focus on controlling risk.

What is included in the portfolio and what is avoided?
The fund has a well diversified portfolio with a good balance of large, mid and small cap stocks. In terms of sector allocation, the fund is currently overweight in textile products as India's competitiveness in exports and cost advantage versus other dominant countries globally augurs well and could help gain market share globally. Within the banking space, the fund is currently skewed towards private sector banks as against public sector banks as private sector banks are better positioned to capitalize on the economic recovery given their relatively strong balance sheets. The scheme is also overweight construction projects sector as some of the businesses in this space are expected to benefit from the government's increased spend on infrastructure sectors such as roads, railways, defence, etc. Cement is another sector where I am overweight, as currently capacity utilization is at sub optimal levels and with an expected pickup in infrastructure and construction related activities the long term prospects seem quite positive.

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?
Since the scheme has a lock-in of 3 years, I typically look to invest in stocks with a relatively long term view. However, this also depends on what percentage of the AUM is under lock-in. I typically avoid taking aggressive cash calls and the cash maintained is primarily to meet redemption requests.

Any tactical miss you regret (not having, or not having enough or holding something) in your portfolio?
Given the typical profile of the investors in this fund, we do not make very aggressive allocation to mid and small cap stocks in the fund. This did go against us especially in 2014-15 when small and mid cap stocks did extremely well and many of our peers had high exposure to small and midcap stocks which helped them to outperform. However, it was in line with our overall strategy for the fund and as such I do not really regret about it.

Please click here to read the analysis of this fund.