'We continue to hold on to stocks that fall out of favour if we believe that the fundamentals are still strong,' says Anand Radhakrishnan of Franklin India Bluechip Fund.
What is the investment strategy of your fund? (Including internal rules on investment universe, capitalization orientation and maximum cash allocation)
The investment strategy of FIBCF has remained the same through market cycles since inception. Our belief is that there are stocks that need to be bought and sold regardless of the state of markets and hence, there has been no change in our investment strategy.
Our approach has been to construct a well-diversified portfolio of stocks with a long-term perspective. We continue to hold on to stocks that fall out of favour if we believe that the fundamentals are still strong. Though growth stocks form a large component of our portfolio, we have also tried to capitalise on emerging opportunities in value/cyclical stocks. Thus, our objective has been to build a diversified portfolio with a mix of growth and value stocks provided they meet our investment criteria. We follow a bottom-up approach to stock selection wherein we look to invest in fundamentally sound companies across sectors through a dynamic blend of growth and value styles of investing. The companies that we seek to invest in are (a) well managed; (b) generate high ROCE and (c) demonstrate the ability to deliver sustainable growth in earnings.
What are the essential attributes for the stocks to be in our portfolio?
As mentioned above, 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 are essential.
The stock selection process includes:
- Analysis of the company's market potential and competitive position
- Analysis of a company's management to determine its integrity, vision, operational efficiency and establish industry benchmarks
- Analysis of a company's business strategy
- Identification of drivers of shareholder wealth creation, and
- Fundamental security valuation
We typically hold about 35-40 stocks in the portfolio. The fund manager strives to maintain adequate diversification across companies and across sectors. Typically, no single stock is expected to exceed 10% of a portfolio's assets. We do not believe in taking cash calls on fund portfolios and instead try to reduce the risks through quality stock selection and adequate diversification.
We adopt a buy-hold strategy and our average holding period tends to be around 2 years. This is in line with our principle of overlooking short term noises and focusing on long-term fundamentals. At times the portfolio churn may be higher due to market volatility but by and large, we maintain low portfolio turnover ratio
What kind of stocks never enter your portfolio?
We do not look at companies with poor corporate governance, short term momentum ideas which have poor long-term prospects, fleeting competitive advantages, businesses with artificial barriers to entry, unexplainable financials etc.
What will you attribute the relatively consistent performance of your fund in recent years?
Through the market ups and downs, our equity teams have remained focused on the long-term fundamentals - we stick to basics, ignore momentum stories that reflect short-term and focus on building a portfolio of companies that are creating value for their shareholders. This helps us in providing superior risk-adjusted returns to our investors in line with the fund's investment objective.
Any tactical miss you regret (not having, or not having enough or holding something) in your portfolio?
Metal stocks have done well over the last 6 months and not owning them has been a tactical miss. Also, exposure to telecom stocks has weighed on performance.
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