Investing for the long haul

Sohini Andani, Fund Manager, SBI Magnum Midcap says that keeping a long investment horizon, to benefit fully from a company's growth potential, has contributed to the fund's superior performance.

What is your investment universe?
The fund invests between 65-90% in midcap stocks and the rest is being allocated among small cap, large cap and cash, with minimum investment of 10% in small caps. Midcap universe for us is defined as 101-400th stocks ranked by mar cap. Anything below the 400th stock is small cap and the top 100 stocks are large caps.

What attributes should a stock have for it to become a part of your portfolio?
The stock is either a structural growth stock or an emerging company in any sector which is growing faster than its peers or a company where there is a positive change at the margin in terms of business fundamentals. We look for capital light business models, high scalability, strong management/promoter background/trackrecord, high promoters' holding, good history of consistent dividend/tax payouts etc. apart from favourable risk reward in terms of price value gap as some of the factors while investing into any midcap company.

What kind of stocks never enter your portfolio?
We never say never for stocks to enter our portfolio. However, in case of companies which have had corporate governance issues in the past, and/or where promoter holding is very low (below 10-15%) are generally avoided.

What will you attribute the relatively superior performance of your fund to in recent years?
We have a strong internal research team which continuously looks for new investment ideas with thorough research done internally which helps in investing in good midcap stocks. We own our investments over longer horizon (3-5 years) to benefit fully from the company's growth potential and compounding impact it has for portfolio returns. Also we are more careful while entering any new stock and look for higher margin of safety as we plan to own it for longer horizon.

Is there any tactical miss you regret (for instance, not owning a stock or not owning enough of it)?
In case of midcap stocks there are always ideas that we would have missed at any point of time as new companies emerge or turnaround cases come to light as the universe is much larger than for large cap stocks. What matters is whether your existing investments can deliver equal or better returns as compared to the misses that we may have had. For instance in recent past, we missed participation in the rally of airline stocks which benefitted a lot from significant fall in crude prices.

Please click here to read the analysis of this fund.

This article was originally published on May 09, 2016.