Top small & mid cap mutual fund managers 2020

ET Wealth together with Morningstar India has selected and ranked India's best equity mutual fund managers, across three categories, based on their five-year risk-adjusted returns. Here are the top 5 in the small and mid cap category who have created the most wealth for investors.These fund managers are only acutely aware of the frequent disruptions in recent years—on account of demonetisation, the introduction of GST, trade wars and more— and how these have reshaped business environment. So while the extent of the pandemic-led disruption has not been seen ever before, many had already equipped their portfolios to handle large-scale disturbances. Read on to know how the professionals have managed to put a smile on investors’ faces despite some trying times.1. Shreyash Devalkar, Axis Mutual Fund 77946201Age: 41 years Education: B.E. (Chemical Engineering), Masters In Management StudiesExperience: 15 yearsAxis Midcap investments5-year asset weighted return: 11.1%Average 5-year AUM: Rs 18.02 crRisk adjusted returns: 0.401Fund managed: Axis MidcapAUM (Rs cr): 5,867Annualised Returns (%)3-year: 8.655-year: 7.31How he has managed the fundDevalkar’s strict emphasis on quality shines through in Axis Mid Cap with a portfolio comprising high conviction bets. His preference within the mid-cap space is for businesses that either have leadership position within a niche area or challenge bigger rivals within a larger arena. Devalkar is very particular about gauging the execution capabilities of the company management—a critical aspect for scaling up mid-sized businesses. His ability to deftly negotiate risk in this segment is visible in the fund’s superior downside protection across time periods. The fund’s sterling performance has been aided by lower weightage in the troubled financials space while having healthy positions in sectors like healthcare and chemicals that got re-rated sharply in recent months.QUICK TAKEWhat market tells meSome companies have shown superior cost management during tough times. Well organised companies gaining market share has also been observed. The market has acknowledged these trends and the rally has panned out on a stock specific level, accordingly.My fund is aligned for Quality mid-cap companies combine the flexible, innovative, high-growth features of mid and small size companies with the proven management and liquidity of quality companies. The endeavour is to identify market leaders in emerging industries or higher growth companies in established businesses.Promising investment theme for next 3-5 yrs Our philosophy remains quality and growth. We would stick to good quality companies. The pandemic has reshuffled the pecking order when it comes to growth. We are overweight on quality companies gaining market share in all sectors including IT, pharmaceutical, lenders, insurance, telecom, auto, cement, retail and consumers.Top sector bets and top stock picks 77946208Also read: Best equity mutual fund managers 2020: Ranking by ET-Wealth-Morningstar2. R. Srinivasan, SBI Mutual Fund 77946219Age: 49 years Education: M.Com , MFMExperience: 28 yearsSBI Small Cap investments5-year asset weighted return: 9.8%Average 5-year AUM: Rs 1,366 crRisk adjusted returns: 0.260Fund managed: SBI Small CapAUM (Rs cr): 4,270Annualised Returns (%)3-year: 3.125-year: 9.08How he has managed the fundSrinivasan has leaned towards caution for some years now. He has stuck with quality names while resisting the temptation to give in to the momentum-driven spurts in stock prices. He has found comfort in spreading out the portfolio to soften the fund’s risk profile. He is not averse to underperforming in phases when valuations turn unreasonable. It is at such times that his strict emphasis on bottom up stock selection shines through. He is wary of lumpy flows beyond the fund’s capacity to absorb and prefers to gate the flows depending on his comfort with liquidity and valuations. While he has gained from astute stock picks in past few years, he says credible ideas are difficult to come by now. However, Srinivasan retains strong faith in the potential of this space, with the large hunting ground it provides dotted with multiple sound businesses untapped by the market.QUICK TAKEWhat the market tells me The market is telling us everything is hunky dory. That it has already developed immunity to the virus. However, what I see around me is totally different. So I’m confused, to say the least. Maybe the market is telling us that rates will remain low for a long time to come and that there’s no real need for equity risk premium to go up. In other words, lower rates (in effect, lower cost of equity) are the only plausible reason markets have bounced back so sharply. I’d be cautious given that the other two variables that impact markets, namely growth and return on capital expectations, are sharply down. My fund is aligned for We run a simple bottom up philosophy that focuses on stock selection. There is no change in that style. While liquidity is always a challenge, it’s a large and diverse market out there in terms of numbers. If your question is on how we’re looking to manage the volatility in the market, we are not. Promising investment theme for 3-5 years In this fund, we run a pure bottom up philosophy that focuses on stock selection. There is no common theme or thread we are playing.Top sector bets and top stock picks 779462353. Vinit Sambre, DSP Mutual Fund 77946241Age: 45 years Education: B.Com, FCAExperience: 21 yearsDSP Midcap DSP Small Cap investments5-year asset weighted return: 6.5%Average 5-year AUM: Rs 9,003 crRisk adjusted returns: 0.118Fund managed: DSP MidcapAUM (Rs cr): 7,425Annualised Returns (%)3-year: 2.455-year: 7.90Fund managed: DSP Small CapAUM (Rs cr): 4,650Annualised Returns (%)3-year: -5.555-year: 3.89How he has managed the fundAfter two years fending off the rough-end of the stick, Sambre’s fund has put on a strong show. Keeping patience with his conviction ideas and having the discipline to stay away from low quality has helped the fund through testing times. Even if it hurt the fund’s profile in the interim, Sambre continued to side with sectors that were out of favour—such as pharma and specialty chemicals— while avoiding the names getting the market’s attention and yet vulnerable. Sambre wears this patience and resolve like a piece of armour, which has helped him negotiate this high-risk segment many times before. While coming out of the current crisis will not happen quickly, Sambre insists the picture will emerge stronger in the medium-to-long term. The market has the ability to shock, but investors can count on him to follow core investing philosophy to the hilt.QUICK TAKEWhat the market tells meCurrently, the market seems to be building in a lot of optimism and hope around recovery. This liquidity-fuelled market rally has lifted valuations while fundamentals are yet to show visible signs of recovery. Valuations look reasonable now and the upside could be capped in the near term.Portfolio is aligned forThe companies in the funds represent some of the best businesses within categories such as pharmaceuticals, consumer discretionary, agri-inputs etc. Most of the companies are leaders in their respective categories with low debt and high ROCE. We are confident of these companies doing well.Promising investment theme for next 3-5 years We would prefer automobiles and cement. Automobiles, due to poor performance over the past two years, is at the trough of the cycle and we believe could be a good play on cyclical recovery over the next 2-3 years. Cement has seen good consolidation in the last few years, and has demonstrated strong pricing power.Top sector bets and top stock picks 779462644. Pankaj Tibrewal, Kotak Mutual Fund 77946271Age: 40 years Education: Graduate in Commerce and Masters degree in FinanceExperience: 17 yearsKotak Emerging Equity Kotak Small Cap investments5-year asset weighted return: 6%Average 5-year AUM: Rs 3,683 crRisk adjusted returns: 0.099Fund managed: Kotak Emerging EquityAUM (Rs cr): 6,854Annualised Returns (%)3-year: 0.365-year: 6.54Fund managed: Kotak Small CapAUM (Rs cr): 1,494Annualised Returns (%)3-year: -2.735-year: 4.41How he has managed the fundTibrewal insists that playing in the mid/small cap arena is not always about discovering the next multi-bagger. He lays equal emphasis on balancing the EQ with the IQ. Avoiding mistakes is one of the cornerstones of his approach. He finds sticking to the investing philosophy goes a long way in skirting the landmines and ultimately reflects in better portfolio return. He prefers to align with businesses boasting a high quality franchise boasting superior return profile, low leverage and management integrity. Every crisis presents opportunities, and this time is no different, Tibrewal says. He reckons price damage had already occurred in this segment pre-Covid and found opportunity to gain from the further correction. He used the window to hike exposure in select names where long term value remained intact despite near-term impairment in earnings. He emphasizes that the companies that will survive this phase will thrive in the coming years.QUICK TAKEWhat the market tells meThe current divergence between performance of large and mid-small caps is at historical extremes. Relative valuations of mid-small caps vis-a vis Nifty has corrected back to 2014 lows. History suggests that such divergences don’t exist for too long and post such large underperformance, midsmall caps tend to outperform large caps over the next 18-24 months. On a risk adjusted basis, broader markets are looking attractive from a medium term perspective.My fund is aligned forThe template we use for selection of our investee companies which has helped us in this downturn are as follows: a good and sustainable business, a great and honest management and an attractive price. We have avoided companies with weaker balance sheet, high fixed costs, inferior cash flows, high financial leverage and corporate governance issues. Promising investment theme for next 3-5 years Supply chain shift from China, manufacturing, consolidation and formalisation of the economy (unorganised to organised) are interesting themes.Top sector bets and top stock picks 779462955. Anupam Tiwari, Axis Mutual Fund 77946298Age: 41 years Education: Chartered AccountantExperience: 15 yearsAxis Small Cap investments5-year asset weighted return: 5.2%Average 5-year AUM: Rs 719 crRisk adjusted returns: 0.062Fund managed: Axis Small CapAUM (Rs cr): 2,472Annualised Returns (%)3-year: 4.195-year: 7.54How he has managed the fundAxis Small Cap is another fund that has come out flying amid the extended pain in the small-cap arena of the past two years. Tiwari employs the same stringent quality filters as other schemes of the fund house while maintaining a degree of objectivity.He is wary of falling for storied names if not backed by adequate numbers—this segment can be punishing on ideas that don’t deliver. Tiwari lays a lot of emphasis on promoter risk, as he insists that integrity and competence is required to scale up businesses from this size. Further, he prefers businesses strong on cash flow, return on capital employed and scalability. He doesn’t mind paying premium for ideas if supported by long runway of growth. Tiwari has recently hiked the number of holdings in the portfolio, using the sell-off to deploy the excess cash on hand.QUICK TAKEWhat the market tells me Market is expecting the post covid recovery to continue and rewarding companies where recovery is relatively better. We believe a full recovery will be only seen in Q4 of this year.Fund aligned forWe continue to follow our core philosophy of owning good businesses run by good management with scalability. We believe small-cap investing requires long term approach.Top sector bets and top stock picks 77946305(Source: Mornigstar India)

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