The Hindu Business Line : ‘We create a portfolio ahead of a trend’

Standard Chartered Mutual Fund’s Premier Equity Fund has been among the top performers over the past year. Mr Kenneth Andrade, the fund manager, took a few queries on the fund-house’s investment strategies and what investors can expect from the transfer of stakes in the fund-house to UBS Securities.

Your mid-cap-oriented fund Premier Equity Fund delivered significant out-performance of the index in the last year. What sector and stock choices contributed to this?

Standard Chartered Premier Equity Fund has been managed as an diversified equity fund, the objective and the investment philosophy being to create a portfolio of stocks/companies ahead of a trend and try and capture the initial growth phase of a company. Thus we focussed a lot on putting together a portfolio of stocks picked through primary research.

We identified scalable market opportunities and put together a portfolio where the market capitalisation did not reflect the change in opportunity. The current structure of the portfolio would appear to be constructed around the mid-cap space but that essentially was not the mandate. The portfolio has no market-cap bias.

It has been a pretty good performance across the portfolio, wherein cap goods, media, cement and some part of the oil ancillary basket of stocks came through with a good price performance.

With mid-cap stocks staging a strong recovery over the past year, will the mid-cap out-performance continue over the next year?

Mid-caps usually track the valuations of their large-cap peers. But in India, a good number of large companies are growing as fast or even faster than their small peers, so I don’t think it will be a relative valuation market going into the next couple of years.

If you go back a couple of years, except for a couple of smaller niche IT companies, you would have got a higher return by sticking to the larger tier I companies in that space. So while the environment is strong and the benefit will be felt across the corporate world, I think there would be equal opportunities across market capitalisations.

What is your view on current valuations for mid-cap stocks, in relation to their earnings for FY08?

India is a growth market and I don’t believe a value portfolio would be easy to create in this environment. Stocks are rich in valuation but what one has to focus on is how fast they are growing into the environment. I imagine that is how we need to price these business.

With the Standard Chartered AMC business being taken over by UBS, do investors have to watch out for changes in fund objectives or management style?

We run all diversified equity funds. With UBS coming in there would be no change in the objectives and the management style.

The investors, on the other hand, would benefit from the global expertise and systems that UBS would bring into India. UBS is among the top five asset management companies worldwide.

Though the Enterprise Equity Fund was originally promoted as a fund focused on Equity IPOs, the current portfolio appears to have no bias towards recently listed stocks. Have you changed the fund’s objectives?

No, the objective of the fund remains the same. Enterprise it is more of an ‘index plus’ fund. A large part of the portfolio is passively managed, while a small portion is actively managed, which is the IPO part.

The idea is to capture the listing gains. You can also call it the arbitrage between the primary market price and the secondary market valuation. So it’s a valuation arbitrage, nothing more than that.

AARATI KRISHNAN

(Queries may be e-mailed to mf@thehindu.co.in, or sent by post to Business Line, 859- 860, Anna Salai, Chennai 600002.)

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