Our interaction with R. Srinivasan, fund manager, SBI Magnum Global Fund
What is your investment universe?
SBI Global is run as a quality mid-cap strategy wherein we define quality in terms of (1) Competitive advantage or a right-to-win characteristic, (2) Return on capital, and (3) Growth.
We screen the market universe for stocks that fit this criteria and have generally found around 150-170 stocks that broadly fit the bill. This becomes the effective investment universe. Within this, there is a clear preference for mid-caps given that this is a predominantly mid-cap strategy (mid-and-small-caps are companies that are outside the top 100 in terms of market cap rank and we invest a minimum of 75% in this space). The portfolio has normally had about 35-40 positions.
What attributes should a stock have for it to become a part of your portfolio?
As mentioned above, a competitive advantage, reasonably high returns on capital (say, in the range of 18-20%) and growth.
What kinds of stocks never enter your portfolio?
A good number! Mostly, cyclical or commodity-type 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 few years or more (except the last one year) not only in India but across emerging and developed markets. This quality bias would have had a large role to play. Not to mention, the performance of our investment team, in this regard.
It is pertinent to note, however, that stocks with quality characteristics have not done well over the last one year which has led to the fund under-performing on a relative basis. From a mean reversion perspective, this may continue for a while.
Is there any tactical miss you regret (for instance, not owning a stock or not owning enough of it)?
Errors of omission would be meaningful. From a not-owning-enough perspective, 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 in this regard.