Our Q & A session with Jayesh Shroff, fund manager, SBI Magnum Multiplier Fund
What is the investment strategy of your fund? (Including internal rules on investment universe, capitalisation orientation and maximum cash allocation)
My investment philosophy is to gun for growth without compromising the quality of stocks that I buy in the portfolio. Within that stock selection is primarily based on the following criteria
1. Change at margin (either change in management, competition. Pricing, etc.)
2. Leadership in respective areas of operation
3. Wide canvas of opportunity / market available for the business
4. Good quality of management
The reason behind this philosophy is that market always thinks in linear fashion and therefore underestimates the non-linear result in case of change at margin. Therefore, there is an opportunity for us to earn higher than normal return in case of such investments.
As a strategy we follow both top down and bottom approach to sector/stock selection.
As a fund house all our portfolios, including Magnum Multiplier Fund (MMF), are governed by internal templates. Thus we have very well defined market capitalisation range for MMF. We typically run the fund at 65:35 (+/-5%) large cap:mid/small cap ratio. We have limits in terms of deviation from benchmark for individual sectors and stocks. We do not take large cash calls and therefore usually do not exceed 7% cash levels.
What are the essential attributes for the stocks to be in our portfolio?
As mentioned above we are very careful about the quality of management of stocks that we buy in our portfolio. Secondly most stocks are bought on philosophy of 'change at margin' along with other factors as explained above. Third, we do take active sector calls and therefore select stocks based on the above philosophy within sector of choice. Fourth, we not churn our portfolios often. Therefore, we will hold on to the stocks till the time reason for which we bought the stock remains valid.
What kind of stocks never enters your portfolio?
We usually invest in any stock/sector for long term wealth creation and therefore restrict our churn. With that strategy naturally we avoid trading plays in the market like global commodity stocks. Companies which are not market leaders in their respective areas of operation are usually not bought in the portfolio.
What will you attribute the relatively consistent performance of your fund in recent years?
The philosophy of investment in the fund as outlined above has been one of the key reasons for our consistent performance. Focusing strongly on quality of companies that we invest in is also a key factor in our outperformance. Third, our sector calls both on the way up and the way down has helped us immensely in outperforming the markets.
Any tactical miss you regret (not having, or not having enough or holding something) in your portfolio?
There will always be lots of hits and misses in the portfolio. Within misses, we could have been more aggressive on the consumer discretionary space. Within stocks that you buy and they move up, you always feel that you should have bought more of the same.