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Sunday, Jul 10, 2005

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"Unrestricted style will ensure it is always relevant"

Aarati Krishnan

What can a new vanilla equity fund offer an investor who already has a mind-boggling choice of diversified funds? An unrestricted investment style, says Mr Rajiv Anand, Head (Investments) at Standard Chartered Mutual Fund. Mr Anand takes a few questions from Business Line on what the new offering — Standard Chartered Classic Equity Fund — has to offer:

An investor seeking to invest in an equity fund already has the choice of several diversified equity funds with a four- to five-year track record. What are the distinguishing features of the Classic Equity Fund that should make an investor consider it for his core portfolio?

To be a core part of an investor's portfolio, a fund needs to have an unrestricted, diversified style. It should be able to deliver consistent performance, should be a product with adequate risk controls and from a reputed fund house.

I believe that the Standard Chartered Classic Equity fund fulfils all these conditions. It is an unrestricted diversified equity fund. This will ensure that this fund will never go out of fashion, unlike one that adheres to a specific style or a fashionable theme.

I've read that you will be using the proprietary "Equity Circle Process" to make investment decisions. Can you briefly outline how this process works in stock selection?

The Equity circle process has 3 modules — idea generation, security analysis and, finally, portfolio construction and risk control. Idea generation can be either top-down or bottom-up. We will look at macro themes such as changes in tariffs or interest rates or taxation, for stock ideas.

We also have computer programs that can crunch financial data for 5,000 listed companies and generate ideas based on the macros we have built. Once we have identified a company, we will drill deeper to understand the business, the industry and its management. We will then look at the valuations at which the company is trading.

These factors will help us identify a good business and whether it is available at reasonable valuations.

A good business could remain cheap for long periods unless there is a trigger or market interest.

We will, therefore, track market interest by evaluating the free float of the stock, institutional interest and the amount of research coverage on a particular stock.

Once the portfolio of stocks is identified, we put it through our tactical benchmark asset allocation model to optimise returns per unit of risk.

We also have stringent risk control measures at a stock and sector level to ensure that indiscipline does not creep into portfolio construction, as result of market excesses.

Equity funds in the Indian context have always found it easy to outperform the index in a rising market, but have under-performed under bearish conditions. What specific risk-containment measures do you have in place to contain downside risk?

Our portfolio will comprise hand-picked companies that demonstrate sustainable growth in profits over a 2-3 year time-frame. The basic premise we work on is that price performance will follow profit growth.

If we are confident of the businesses we have bought into, that automatically brings in downside protection, especially over a longer time frame. It is difficult to immunise the portfolio to short term volatilities.

After the sharp rise in the indices, not many stocks, either in the large cap or mid-cap space, look really cheap or undervalued now. Will you be deploying your funds in a phased manner to reduce the risks associated with the timing of the launch?

We believe the markets as a whole are reasonably valued. Furthermore, irrespective of the index level, there are always pockets of opportunities in the market.

We will locate these stocks with dedicated process-driven research. We will endeavour to build our portfolio in a phased manner initially, but remain pretty much fully invested thereafter.

Standard Chartered has been a pure debt fund house so far. Have you added to your fund management team so that you can take on an equity fund? Can you tell us who will be managing this fund and what is the extent of his equity experience?

Our equity team of fund manager, research analysts and dealer are in place. As we go forward, we will add to the team. The Classic Equity Fund will be managed by Bobby Surendranath (36) - B. Tech (IIT), PGDM (IIM-Lucknow), CFA (AIMR, US).

Bobby has around 13 years experience in fund management, from his earlier stints at Aviva Life, Zurich Mutual Fund and SBI Mutual Funds.

At Aviva, he managed the equity and debt portfolios of the unit linked funds and coordinated the stock research process.

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