SA MF Portfolio Drill Down

Q&A: Questions & Answers Portfolio Q&A
1

Hey folks,

This is an incredible forum to learn and grow and improve and improvise. I want to put forward my MF PF to understand and receive criticism.

Context: I started investment in these funds 3-4 years back as a novice in MF, wth no goals in mind, as I was single and still try to focus on my thesis for investment for long term, however, my main reason was to do savings. I did little research on basics and went ahead with Direct Growth funds only. While, I do not have any definite goals per se in short term, as I’m still single, but I guess I would like to focus on next 10-15 years with aim to buy my own independent house & save for future dependants, may be SEPs for retirement.

So I started with the following funds:

1. ICICI Pru Value Discovery - G - Direct
2. L&T India Value Fund - G - Direct
3. HDFC Hybrid- G - Direct
4. Mirae Emerging Bluechip - G - Direct
5. ABSL Focused Equity - G - Direct
6. SBI Small Cap - G - Direct
7. PPFAS LTEF - G - Direct
8. PPFAS Liquid - G - Direct
9. DSP Nifty 50 Index - G - Direct
10. DSP Nifty Next 50 Index - G - Direct
11. Motilal Oswal S&P 500 Index - G - Direct

After these funds have been reclassified by SEBI few years ago, and new changes are still on horizon for reclassification and they will continue to be so in future, today, I sat back and tried to trim my holdings for to mitigate the overlaps.

I focused on continuing with following funds (Growth & Direct)

Large Cap & Mid cap - Mirae Asset Emerging Bluechip
Small Cap - SBI Small Cap
Value fund - L&T India Value
Index fund - DSP N50 & NN50 Index
US diversification - Motilal S&P 500 Index & PPFAS LTEF

Rational behind sticking to these funds -

Mirae Emerging Bluechip - Instead of sticking to one multicap fund with Small cap exposure, I intend to keep it separate for small cap funds are bit cyclical, so for large and mid caps I kept this fund after due diligence in their current holdings and the experience has been satisfying so far. The capital allocation is going to be highest in this fund. The scheme has gone through its stages of multiple drawdown and been known for even faster recovery for the sake of quality stock it holds. I’ll continue with it henceforth.

SBI Small Cap - Okay, to start with I just took randomly this fund and eventually for past few weeks decided to review it after two years on what they hold? They hold some really good stocks in small cap space and I’m satisfied with it, and looking to play the small cap trend whenever it arises and until a cycle is reversed - I will look into it again after couple of years. Small cap index if cross the previous multi years high can give rise to the next leg of rally. Time is not a constraint here.

L&T India Value Fund - I just wanted to bet on the India story for next decade and so I compared it with Templeton India fund and Nippon India fund, among their holdings of the portfolio, I liked L&T better. I know it is in the foray of being sold out to new promoter in a month or two, as L&T is spinning off it’s non core business - but I will visit it say once the new buyers come on board and if there are changes to the fund strategy. So far, we have the same fund manager managing it and he to be honest is doing great job in risk to reward checkbox. Drawdown is better than Index and managed to sustain the quick recovery. Some of the holding are overlap with above two fund houses buy they are less than 20% or so. Hence, it gives a good wider category of stocks to cover down the line.

Motilal Oswal S&P 500 - Okay, it’s cliche - diversification. Plus it is the first entrants to the market in US Index space which lets us own all S&P 500 companies. :joy::joy:

PPFAS LTEF - I discovered this a year late, but I believe the kind of no nonsense attitude, transparency and skin in the game they have holds my trust in this fund. Even if I have choice to hold just one fund out of all, I will stick to this fund house. They score perfect on low risk and moderate/above average returns which any investor will expect after its decades of investment. I think I need not to say more about this choice, as their integrity is paramount.

DSP N50 & NN50 - Okay, this is the most risky bet I took to be honest, as I believe I should had gone with ICICI or UTI, but since I have to invest and during that time DSP launched so I just thought of riding it with them. No thought process much behind it. Definitely tracking error and TER are critical, but I’ll revisit it may be in next couple of years to decide if I want to continue or move to established ICICI or UTI AMC in this space. Just wanted to have index funds as most of the funds are unable to beat index even in long run.

ICICI Value Discovery/ABSL Focused Equity/ HDFC Hybrid - Exited these funds today for they were overlapping with close to 60% in portfolio with the ones I chose above. I think my overlapping ratio is around 20% -25% now but I believe that gives me more comfort. Another reason was except ABSL Focused, remaining two were not performing for past four years. And with HDFC Hybrid, I wasn’t comfortable with their debt exposure to CD, CP etc.

If in future I would like to shift from equity to debt, it has to be from the fund who has only exposure to sovereign guarantee and not CP, NCD, etc , and nothing else, I believe as per latest Unit holders meeting, PPFAS might bring it’s new fund in few years. So I’ll blindly go with them. Right now my debt exposure is through PPF, PF, VPF and retirement through NPS for now.

Feel free to comment, criticise and question, and I’ll try to understand, learn and deep dive a bit.

Stay safe, Cheers!

  • SA
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You have 11 funds! It’s a case of over diversification.

Have 1 liquid fund(If you really wanted to have quick cash), 1 Index fund, PPFAS LTE( This will give desired exposure for overseas market + Value investing principle)

If you have more funds you would hardly beat inflation and end up owning more than 100 stocks indirectly through all these MF. Why do you want so many funds?

Keep it simple :slightly_smiling_face:

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True that, I agree. I had 11, although I had trimmed down to 6. Will further drill down and consolidate.

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Hi Shalabh,

Since you have already been investing for 3-4 years, can you comment on the returns ? It will be helpful for newbies like me :slight_smile:

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I personally hold/have held two of these MF: sbi small cap and mirae emerging. I like both and can add that I have also found them to be reasonable in terms of holdings and also returns over long terms. I think one of the important things people don’t talk about much is the importance of sticking to same fund (s) over long durations of time. Small cap and midcap stocks move in cycles. Particular fund managers have styles. And style go in and out of fashion in cycles. As an example, the HDFC fund manager prasant likes PSUs, which are deeply out of favor right now. If an investor keeps switching funds every 3/4 years then they might miss out on the upside in each such switch.

Frankly imo picking a fund is harder than picking a stock. For one, there are more funds than stocks (or it feels like that). But if one has to pick a fund, then I think the ones I have metioned (since those are only ones I have experience with and can talk about) seem good. I’d suggest sticking to a MF for 8 years at least and also doing a 6 monthly audit of the fund in terms of whether it sticks to its mandate or does the midcap fund find solace in large caps or whether a large cap fund is exposing you too much to a smallcap universe. I don’t have much experience with MF either, most of my knowledge is theoretical since I’ve only been in the market for 3 years myself. Please don’t overindex on my advice. All the best to you :slight_smile:

On the issue of debt, why not go for fixed deposits or savings accounts ? Idfc first bank as an example offers 7% savings rate and 6.5% FD rates. These will possibly be better than what any debt fund can offer in a debt down cycle (in an upcycle a credit risk fund can offer more returns but can also suffer from many delinquencies in the down cycle like franklin
India did). Up to 5L per depositor in a bank is insured and even if the bank goes under , and the RBI cannot protect depositor interest (I don’t recall this happening any time in last 20 years), you are protected by law up to 5L total funds per bank. Easiest way to scale is to shard the money across very close family members like parents, children, spouse(s) etc.
I personally don’t believe that depositors interest in a large bank would ever be allowed to suffer (look at yes bank saga) and hence I keep >5L in my idfc first bank account.

Disc: none of the securities mentioned in my post are a buy or sell recommendation. I’m only sharing my experience for academic purpose. I am also invested in IDFC first bank as an investor, apart from being a depositor.

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Frankly speaking based on facts only Mirae and PPFAS has demonstrated good performance in your holding period, rest are not worthy of keeping in PF unless you want to write free cheques m-o-m to AMC. Index fund following sensex or Nifty 50 are very good option if someone wants to invest in MF. Rest all flowery index fund tracking all tom dick and Harry index of the world are useless and will yield nothing other than pain and hopeless hope.

This is no advice or recommendation but sharing based on experience of over decades. It is your money so use it wisely. Please don’t trust someone blindly. Lastly when your are at VP then learn to develop some investing skills by your own. You won’t regret.

Happy investing.
VK

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Ones investment journey is a function of 3 variables:

  1. Amount of hard work one is willing to put in. The more the better. Very few would be willing to put in 10,000 hours understanding companies and their unit economics inside and out, and find the best companies for a given set of circumstances.
  2. Expectations of Investment returns. For most people and most objectives, index investing serves the purpose of returns with inflation beating returns over long periods of time. The newer Avatar of index funds: etfs are potentially better since they allow once to invest in same constituents at even lower costs.
  3. Randomness. There is nothing one can do about this one.

I suggest having some mental model for how much time you’re willing to put into this and also whether that is commensurate with the returns you expect from the portfolio. The two should align imo. And one understands over time the rough balance between the two.

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If you are SIPing, holding 2 to 3 fund schemes across categories is good enough to avoid risks. If you are investing lump sum, hold 3 to 5 MF schemes, anything more that this would complicate your investing.

Tracking: Compare past 1 to 2 year performance stack rankings against 3 to 5 year performance stack rankings, you would get fair idea about whether it is losing glory or not. If it is losing glory, a deeper dive into the holdings and allocation would tell whether you should hold or switch.

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I actually thought about the two funds:

L&T India Value fund - drilled down further kn the holdings for it makes sense to actually hand over my money or not, but on finer details I found, apart from the companies held by every MF they have some really good stocks which could very well define the NAV in the next few years. I may be wrong. But that’s what my understanding and instinct is.

Second - SBI Small Caps - Okay when it comes to small caps, I’m very skeptical keep a very close watch, being cyclical and greatest losers among drawdown. Hence decided to deep dived into their portfolios, and trust me the portfolio is pretty convincing with the quality of stocks they are holding. So until the small caps takes the downward trend, I’m going to stick to this trend instead of SIP in stocks and move on. When the tide will turn probably I will reap some profits and then re-SIP once Small Cap Index goes in consolidation phase.

Coming to Index funds (US & India) Mirae and PPFAS, I’ll stick to it for quite a longer time, until AMC go bust, if any. :confused:

Regards
–SA

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Hi @sahil_vi Absolutely agree. That’s something I guess you summed up pretty well.

My expectations are not high from Index funds or probably any fund, as long as they beat inflation and capital is preserved. Draw downs can be tricky, but I don’t get heckled with it anymore. Very content. I’m open to extend couple of years if the environment is not conducive during Redemption. I have heard ETFs are good, but haven’t delve deep into it.

My main exercise was to identify the overlap across the funds, weed out the non performing funds or similar funds, my horizon for these investment has enough patience say 7-10 years or eventually 12-15 ( except Small Cap).

Rest, I’m comfortable to SIP in Stocks I reasearch myself over the time. Dont want to own the universe of MF. Again if philosophy changes mid way for any of the non index funds, I’ll then take call to move to other which make sense.

Regards,
-SA

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I’ll take it from you and try to implement over a period of time.
Yes, my purpose to be on VP to learn and grow and implement with years to come. I’ll look forward to experience, guidance and direction to succeed.
Thanks again, will fine tune this further after 6 months or so & incorporate it.

However a quick doubt, I’m probably looking for longer duration and not for the duration I had been investing. For e.g. over 15 years if these funds can beat inflation + AMC cost I’m fine. Could be 10%?

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To be honest, my expectations had always been two fold, drawdown should be limited when market go berserk, so I look at that factor one for preserving the capital, second I expect nothing more as long as it is able to beat inflation.

Returns has been mixed - For funds I had exited Absolute returns has been as low as 4% -8% :confused: So again these were the funds I took blindly years ago, and recently when I decided to narrow down, these funds portfolio was already overlapping with others.

Else the ongoing Funds has been giving decent returns, in the range of 10-12% however, they are yet to see more sin waves apart from.Corona, in any case I just expect them to beat inflation and expense. PPFAS has been outperformer, however I’m not reaping any gains and sticking to them for next few years. Mirae stands second, and SBI third followed by Birla Sun Life.
Rest were just nasty. :joy:

Cheers
–SA

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I completely agree with your first understanding. Every fund manager hasba thesis and philosophy and style. Choosing a fund is harder than choosing a stock. :blush:

On your other part of FD etc. in new age banks, that’s a good way to look at it, and safer for 5L cap. I stick to few banks and have enough accounts can’t manage all. Every new job, every time a new bank, but this practice has changed and so I decided to build my relationship deeper with few banks. So sticking to them. Just my thought nothing much.

Cheers
–SA

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Yes you are right @Dragon I was in a mess earlier, trimmed downed the funds to half - 6 funds, and will eventually trim down further in few years to 3-4 funds only focusing Index, PPFAS, Mirae only. Will quit Small Cap, India Value fund at the top of next cycle.

Cheers
–SA

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If your investment horizon is 15 years which you talk about, why are you concerned about drawdowns? You get chance to sip at lower levels. I think you need to rethink on why you are wary of drawdowns in such a long investment horizon if you know you have chosen quality for SIP

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Well that sounds like a food for thought then, I guese you are right. Drawdown shouldn’t be bothering much.