Learning from others

For a long time now, 18 years in fact, one of the truly unique tools that the Value Research website provides is called 'Who Owns What'. This tool, which is of course absolutely free to use, enables users to enter the name of any company listed in India and get a list of funds that have invested in that company, along with information on exactly how much they have invested. Even though this appears to the uninitiated as a research tool about mutual funds, it is really an equity-investment tool.

Watching and analysing mutual fund portfolios to glean knowledge about stocks is of unique value to the equity-investment process. Conventionally, equity investors are blind to the actions of other equity investors. The only information that exists in the public domain is the price of a stock and its volume. It would be quite valuable to know who is buying or selling a stock and what they are doing with their investments over a period. You hear rumours about what other investors are doing and you can make some general assumptions from the price and volume data, but you cannot find out anything more.

This information is simply not readily available. However, there's an interesting exception and that is for mutual funds. In India (but not in most other jurisdictions around the world) mutual funds are obliged to reveal their investments in detail every month. While mutual funds are just one type of investor, this information can be quite valuable. Mutual funds are institutional investors and can be expected to act with a specific investment thesis, backed by proper research.

In theory, anyone can just go to the website of any mutual fund and get the current list of investments made by that fund. For a mutual fund investor who is interested in a particular equity fund, this is perfectly adequate. However, it's not so useful for the equity investor who wants to use this information.

Let's say an equity investor is interested in a particular company at this point of time, for example, Interglobe Aviation, which runs Indigo airlines. The company's stock is currently owned by as many as 92 funds, in quantities ranging from 55 lakh shares down to 59 shares. To glean this information, the investor will have to visit the websites of all AMCs and analyse the data of all 2003 equity funds that are there in India. Or he could do the sensible thing and just head for the Value Research website.

But this is just a basic example. Our equity research team can do far more in terms of conducting deep analyses of the data on equity investments of mutual funds and gleaning trends from that. For instance, our team recently chose a number of high-performance funds from the small-cap and mid-cap categories and analysed their investment actions over a period of time. Combined together, these funds have close to 400 stocks and the investments are worth more than Rs 46,000 crore. This huge mass of investments holds within it a lot of obvious trends but also many surprises and discoveries.

For equity investors who often work in a vacuum, looking at what a set of top-performing equity funds are doing will be an educational experience. However, be warned that this is not a prescriptive exercise. Unlike our premium Value Research Stock Advisor service, we are not carrying a list of companies and saying please invest in these. Instead, this is essentially an idea-generating exercise, where a curious investor can observe other investors, understand their thought-processes and improve his own stock-selection process.

In the cover story of the May 2019 issue of Wealth Insight, read 'Hottest Mid and Small Caps', and find out which stocks fund managers are going for, and which they are pulling out of.

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