We've typically had between 160-180 stocks that qualify under our investment criteria. Within this, there is a clear preference for mid-caps given that this is a mid-cap strategy, says R Srinivasan, fund manager, SBI Magnum Global Fund.
What is your investment universe?
The market is screened for stocks which have the following characteristics: (1) Competitive advantage or a right-to-win characteristic, (2) Return on capital of 18-20%, and (3) Growth of 18-20%. This becomes the effective investment universe. We've typically had between 160-180 stocks that qualify under these criteria. Within this, there is a clear preference for mid-caps given that this is a mid-cap strategy.
What attributes should a stock have for it to become a part of your portfolio?
As above.
What kind of stocks never enter your portfolio?
A good number! Notably, cyclical or commodity stocks that won't qualify under the above-mentioned criteria.
What will you attribute the relatively superior performance of your fund to in recent years?
The universe, as defined above, tends to be heavily biased towards quality and/or defensive businesses. This category has done extremely well over the last 5 years or more not only in India but across emerging and developed markets. This bias would have had a large role to play. Additionally, the investment team has done a wonderful job on stock selection.
Is there any tactical miss you regret (for instance, not owning a stock or not owning enough of it)?
Errors of omission would be pretty meaningful. As a conscious diversification strategy, we've internally restricted active stock weight to 5% of the fund. So, in that context, there isn't much regret on not owning enough of something.
Please click here to read the analysis of this fund.
This article was originally published on April 13, 2016.
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