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Our bottom-up strategy helped to deliver top quartile returns

IIFL Focussed Equity Fund is the topper in the multi cap category in one year. It is ahead of all the other multi cap schemes from big AMCs. The scheme is offering 21.12% returns in one year at a time when the market has been through a volatile phase. Shivani Bazaz of ETMutualFunds.com spoke to Mayur Patel, Principal Fund Manager, IIFL AMC, to find out what contributed to the outstanding performance.

IIFL Focussed Equity Fund is the topper in the multi cap category in the last year. The scheme managed to offer around 27% returns. What are the factors that contributed to the performance?

In a volatile market, our bottom up-strategy based on our proprietary SCDV framework - the scheme allocates 40-60% of the portfolio in the secular segment (S) and remaining in quality cyclicals (C) and defensives (D) while avoiding investments in Value traps (V) - has enabled us to deliver top quartile returns in our IIFL Focussed Equity Fund. Despite a challenging environment, a few companies have achieved significant growth in operating performance over the past year. Through our bottom-up research process, we have been able to identify some of these opportunities. For instance, NBFC, pharma and industrial sectors were amongst the worst performing sectors in the last one year, whereas most of our alpha has come from these sectors. Our portfolio companies like P&G Health, Aavas Financiers, Siemens and Bajaj Finance have grown profits significantly over the last year which has also reflected in their superior price performance.

IIFL Focused Equity Fund is hardly five years old. Do you think the recent performance by the scheme would help to change the profile of the fund house?

IIFL AMC is one of the leading alternative asset managers, with an AUM of over $3.3 billion across asset classes like equity, private equity, credit and real estate. IIFL focussed equity Fund is one of our first equity funds and is our only equity mutual fund scheme – in line with our approach of focussing our efforts and investment ideas across a single scheme. We have received higher interest from investors and distribution partners due to our recent performance.

How are you going to position the scheme? What is the USP of the fund management in this scheme?

The scheme is positioned as a multi-cap focussed fund with a bottom up approach. Our investment strategy will continue to be linked to our SCDV framework where we allocate 40-60% our portfolio in the secular segment (S) and remaining in quality cyclicals (C) and defensives (D) while avoiding investments in Value traps (V). Key USPs of this scheme is our bottom up-driven stock selection, our emphasis on buying stocks based on our risk-reward framework, maintain a focussed portfolio of 25-30 high conviction stocks and our ability to shift allocations between cyclicals and defensives based on our assessment of the situation.

The scheme is betting big on financials. Is that one of the main reasons for its outperformance? Which other sectors are you looking at?

We strongly believe that over the long term India will see a trend of financialisation - leading to exponential growth across the financial sector (such as banks, financiers, insurance and investments). As I said earlier, over the past year the financial sector has underperformed broader benchmarks. However, due to our bottom up stock picking approach we have been able to create outperformance through superior stock selection. Financials, IT, pharma and industrials are our top sectoral positions.

The scheme manages assets worth Rs 258 crore. Some market participants believe that the small AUM size is also a plus point for the scheme. What is your view on this?

As on October end, the scheme had an AUM of approximately Rs. 450 crores, post recent inflows. Over periods, we have not seen a direct correlation between lower fund size and out performance. Further, if you see our portfolio composition, approximately 70% of our portfolio allocation is in large cap stocks. As a result of this, we feel our performance is a result of our research and stock selection process and not a result of our lower size.

What would you tell investors? Who should invest in IIFL Focussed Equity Fund? What can they expect from the scheme?

From our point of view, we will continue to stick to our investment and stock selection approach that has served us well in the past. Hopefully in the times to come we will be able to create value for a larger base of investors.