Neelesh Surana, fund manager, Mirae Asset Emerging Bluechip Fund gives his views on the top-rated midcap fund.
What is your investment universe?
Mirae Asset Emerging Blue-chip Fund is our flagship scheme in the midcap space, which has completed 6 years in July 2016. As per the offer document, the mandate it to invest minimum 65% in mid and small sized companies, i.e. companies which are not part of Top 100 companies by market capitalization. Our definition of mid-cap is companies which are not part of Top-100 by market capitalization. The fund has leeway to invest up to 35% in Top-100 companies. On the lower size, while the universe is quite wide, we prefer companies which generate operating profits of around Rs 100 crores. In this context, we try to avoid tiny businesses, i.e, micro-caps.
What attributes should a stock have for it to become a part of your portfolio?
Our Stock selection process has three aspects: Business selection, Management analysis, and valuation. We look of quality businesses with decent growth prospects as well as return characteristics (i.e. Return on capital employed - ROCE). This is a crucial initial filter. Second filter is with respect to management analysis, which is a bit subjective but you have to look at the track record and corporate governance. A well-managed company will have better capital efficiency so the (Return on Equity) ROE's tend to be better than other companies in the same sector. The last factor is to arrive at a particular value. Value has to be more than the market price so that there is enough 'Margin of Safety'. The idea is not to buy cheap companies, but good companies at reasonable valuation.
What kind of stocks never enters your portfolio?
We would avoid stocks which do not meet basic criteria of Growth, Return on capital employed (ROCE) and management track record.
What will you attribute the relatively superior performance of your fund to in recent years?
Mirae Asset Emerging Bluechip fund has completed 6 years in July 2016. Since inception, the fund has delivered close to 23.25% CAGR returns compared to the benchmark return (Nifty Midcap 100 index) of about 10.03%, thereby generating alpha of about 13% CAGR (as on 16th August, 2016). We have generated returns over the benchmark, by being in the right pockets as divergence across sectors and stocks with sector was significant in the last six years. Disciplined approach to investing, with focus on quality up to a reasonable price along with diversification, has helped us deliver as satisfactory track record.
Is there any tactical miss you regret (for instance, not owning a stock or not owning enough of it)?
I will say that regrets are mainly related to errors of omission on few stock specific cases wherein we did not participate due to our lack of comprehension regarding the potential of good business.
This article was originally published on May 26, 2017.
Ask Value Research 
New episodes every Friday 
New Process Alert 
Seems like you've uploaded a wrong QR code. Please upload the QR code downloaded from MF Central platform.
