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Roshi Jain on building a resilient portfolio

Roshi Jain, Fund Manager, Franklin India Focused Equity Fund shares how stocks are picked for the fund, when stocks are sold, and the kind of companies to avoid

Roshi Jain on building a resilient portfolio

Understanding the approach that mutual funds take when selecting and selling stocks is useful to investors, both those who are invested in the fund and those who are looking to sharpen their own stock-picking skills. In the interview below, Roshi Jain, Fund Manager, Franklin India Focused Equity Fund discusses the outperformance of the fund, the methodology used to select stocks and more.

What has resulted in the outperformance by your fund in the last one year?
The key reason for the fund's outperformance is our approach of constructing a diversified portfolio of stocks that provide sustainable growth at reasonable valuation and not chasing momentum.

What is your stock-selection criteria?
Our investment philosophy focuses on growth, quality, sustainability and reasonable valuations. Based on these criteria, we remain focused on identifying investment opportunities. Each stock has its unique characteristics with respect to quantitative and qualitative attributes, which are individually considered to determine if they fit our investment framework.

When do you sell a stock?
If a stock no longer fits our investment framework which, as highlighted above, centers around growth, quality, sustainability and reasonable valuations, we would sell the stock.

What kind of companies do you stay away from?
We avoid companies that do not meet our investment philosophy.

How do you allocate capital across large, mid and small caps?
The fund has no set limits for exposure to any particular market-capitalisation range and focuses on identifying opportunities irrespective of market cap. It dynamically manages its market-cap allocation based on the risk-reward offered at any point in time.

A focused fund can swing both ways wildly and give investors the jitters. How do you dampen volatility?
The essence of a focused fund is to have a portfolio that can take concentrated bets at the stock and sector level. On this account, the fund may have a higher short-term volatility as compared to a multi-cap/diversified fund. However, on a longer-term basis, we believe the discipline of sticking to our investment philosophy, as articulated above ensures superior risk-adjusted returns.

As compared to the category and benchmark, the fund is overweight on small caps but underweight on mid caps. How do you see that?
The portfolio construction and allocation between large/ mid and small caps is an outcome of stock and sector selection and risk-reward considerations. It is not driven by benchmark weighting.

Your cash/debt allocation stands at nearly 10 per cent? Are you not finding enough opportunities?
We maintain a cash policy that is intended to run the funds on a fully invested basis. Cash position of about 5 per cent of the portfolio is maintained to meet day-to-day liquidity requirements. However, in case of situations of high-valuation levels, a defensive portfolio strategy may be adopted and cash levels may be increased to that extent to reflect our cautious stance. The portfolio manager in such cases, at her discretion, can hold up to 10 per cent of the fund in cash.

What can investors expect from your fund in the next one year?
The fund now has a successful track record of over 10 years. Our investment philosophy is tailored to deliver sustainable returns over the medium to longer term. We advise investors to invest in our equity funds with a long-term investment horizon and through SIPs.