Lessons in investing: Morningstar lists out why some of the top portfolio managers make good calls and succeed

These few money managers have the right emphasis on fundamentals, willingness to turn contrarian, with a longer term view in sight, said Morningstar.

Investment research firm Morningstar, in an analysis of top money managers, has taken a look at the hits and misses of some of the highly-rated portfolio managers with the mutual funds, attempting to decode the thought behind the investment decisions.

Sankaran Naren, ICICI Pru

Naren manages the ICICI Prudential Value Discovery Fund, and is a follower of the value investing philosophy. Naren has also incorporated growth-oriented strategies for long-term opportunities that align with his strategy. In 2021-22, Naren was quick to spot sector rotations and realigned accordingly, cutting exposure to IT from 20% in January 2021 to 9% in December 2022, while increasing exposure to energy to 11%. His bet on pharma for the longer term, where valuations turned attractive after the 2020 correction. The decision rewarded investors during 2021–22 when healthcare allocation generated strong returns for the funds. The space entered a lean patch in 2023, but Naren's kept his conviction, and was vindicated by a recovery in 2024.

The ICICI Pru top money manager is of the view that in investing, mistakes are inevitable and must be acknowledged, not ignored. He says he is guided by an honest introspection, learning from missteps, and a focus on fewer mistakes.

Another instance was Naren's bet on Vodafone Group Plc ADR in July 2021, which was a contrarian investment in an out-of-favor asset with long-term potential.

Vodafone's remained financially strong amid global headwinds, even better-placed than Vodafone Idea in India, thus providing an indirect exposure to India’s telecom recovery via a more stable global parent. Though the ADR underperformed soon after, Naren kept his faith, and was rewarded with a 15% return over the next one year.

Naren has displayed a sharp understanding of evolving market trends, early recognition of sectoral shifts, and a disciplined execution.

Neelesh Surana, Mirae AMC

Mirae Asset Mutual Fund's CIO, Neelesh Surana been pivotal at the fund's equity investment strategies since 2008. He has held high-conviction positions through market
cycles and avoided over-valued or fundamentally weak businesses. Neelesh looks for competitive advantages, strong leadership, coupled with reasonable valuations, which ensure a margin of safety while helping him avoid momentum-driven ideas.

"He follows a bottom-up stock-selection approach, focusing on business scalability, high return on capital employed, and the ability to generate sustainable cash flows," said Morningstar's analysis. His belief is that alpha is best generated through right stock selection and not by sector rotation, and he is credited with being able to assess management quality. Neelesh's bet is always on 'disciplined diversification' with an aim of risk-adjusted returns.

"Surana is an astute stock-picker with a proven ability to identify high-potential companies early in their growth cycle. He demonstrates the conviction to stay invested through short-term volatility, so long as company’s underlying fundamentals remain sound and continue to meet his rigorous selection criteria," said Morningstar.

He participated in new-age bets such as Eternal (Zomato) and PB Fintech (Policybazaar) when valuation metrics like P/E or RoE were painting an incomplete picture. He kept the exposure below 2 percent of the portfolio for these. This disciplined bet paid off in 2024, with both stocks delivering multibagger returns fuelled by fundamentals and a positive sentiment. His approach was valuation-conscious and research-led, along with the ability to look beyond market dislocations, said Morningstar.

Surana also showed a clear sell discipline as he offloaded shared once it met his return target, irrespective of the investment horizon. This focus on valuation-driven decision-making has held him in good stead.

Suyash Choudhary, Bandhan Mutual Fund

Suyash is widely regarded for his prudent, macro-aware style that mitigates risk and looks to preserve capital, while avoiding speculative or credit-heavy bets, instead preferring quality sovereign and AAA-rated instruments. "This discipline was particularly visible during periods of market stress, where his funds displayed resilience due to limited credit exposure and conservative positioning," said Morningstar.

To manage a fixed term investment strategy requires judgment and skill, and Suyash has shown exactly that while facing challenges, making him 'one of the most reliable managers' in the fixed-income space, the note said.

Shobhit Mehrotra, HDFC Mutual Fund

Considered as one of the most-seasoned and experienced fixed-income managers in India, Shobhit has been with HDFC since February 2004. Mehrotra’s investment style is one of discipline and research-intensive approach, with macroeconomic insights with rigorous bottom-up credit evaluation, Morningstar said. "...Mehrotra has built a reputation for prioritizing capital preservation, consistent income generation, and risk-adjusted returns—hallmarks of his fixed-income strategy." He is considered as conservative with a strong emphasis on credit quality and liquidity management, avoiding speculative credit plays. His investment style is a prioritization of capital preservation, said Morningstar.

"Among his most notable investment decisions was the strategic allocation to short- and medium-duration debt instruments between 2021 and 2023, a period marked by rising global inflation and tightening monetary policy by the RBI," said the note.

Morningstar's Takeaways

While a flawless portfolio manager may not exist, a long-term view while evaluating portfolio managers’ capabilities is helpful. The frequency of their missteps do matter, and so does the fact whether they align with the manager’s philosophy.

These few money managers have the right emphasis on fundamentals, willingness to turn contrarian, with a longer-term view in sight, said Morningstar. "Equally important, they maintain a candid attitude toward their errors, consistently reflecting on and learning from them, which we believe is crucial for enhancing future returns."

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