Here's a look through the background, investing strategy, challenges while moving from research to fund management, role models and hobbies of the senior fund manager.
A big disadvantage a professional fund manager faces as compared to Portfolio Management Service (PMS) fund managers or individual investors is that he is constrained by size. While a big asset under management (AUM) is good for a fund manager who dabbles in frontline stocks, it has its disadvantage when it comes to managing a portfolio dedicated to small and medium-sized companies.
Entering and exiting a small company is not easy. Further, mutual fund managers are governed by tighter rules of both the regulator as well as the Asset Management Company (AMC) itself. Thus comparing a mutual fund’s small and mid-cap fund to any PMS fund managers’ returns is not really an apple to apple comparison.
Lalit Nambiar a fund manager with UTI manages various small and mid-cap fund. He has been on the research side for a long time before moving on to fund manager. Presently he manages Rs 4,000 crore of assets and has a structured and well-defined approach to investing.
Lalit Nambiar walks us through his background, investing strategy, challenges while moving from research to fund management, role models and hobbies.
Journey towards becoming a fund manager
Did my basic graduation in accounting from Narsee Monjee, Mumbai, a postgraduate degree in management from Bombay University’s Sydenham Institute and later while on the job was awarded the international CFA charter.
As a second-generation finance professional with both my parents being bankers, I suppose there was already some predisposition to the broad field of finance. That and being born and brought up in a predominantly business suburb of Mumbai, the milieu more than anything else probably made me gravitate towards the markets.
I joined the workforce just a bit after the liberalisation of 1992, the markets were a very exciting place to be in even as the government withdrew from the business and the country opened up to private and foreign investment.
I have largely been in equity research from the beginning, initially on the sell-side and about 11 years back moved to the buy side.
Challenges from being an analyst to a fund manager
Very difficult to separate the part played by work experience from the tendencies inherent to each role, as typically as one moves from analyst to fund manager, one has the benefit of more experience.
In general, as an analyst, I had a greater tendency to have clear likes and dislikes, either hypercritical or overly sanguine of a stock idea, especially when I was on the sell side. This tendency to be slightly bi-polar was probably due to less experience and being less exposed to the actual act of investment. Also had a bias to think in terms of within the sector versus across sectors with lesser of a macro view of things.
But as a fund manager, you realise there are many more hues of grey and your perspective has to be more nuanced, with more than four or five dimensions across which you have to place your perspective.
In a sense, as you learn more you know how much more there is to learn, so you tend to be more humble about others perspectives and approaches to stock ideas and about life in general.
Stock picking strategy
In case of the midcap fund, we believe in picking stocks from a bottom-up perspective, as it helps the fund focus on the unique characteristics of each midcap company.
This strategy benefits the fund as mid-sized companies typically have more room for growth against a smaller base and are less affected by global themes. As such the investment style can be described as agnostic to the 'growth-versus-value' paradigm. This is more an outcome of the bottom-up process of the fund rather than an intentional approach.
At any given time, the portfolio will have some names in the gestation or 'sowing' stage while the rest may be in the 'ripening-to-harvest' stage, which requires patience. I find some margin of safety in buying companies during a weak but transitional phase but with an important pre-condition, their past operational history or may a particular individual trait should have been above average and there is a reason to believe that the business could mean revert.
The focus at entry is thus on those companies where the improvement in the business could surprise weak or depressed expectations. In my experience, a company's recovery from weak conditions can be driven by several factors, including an improving competitive situation, a change in leadership priorities within the company or even a phase-change in the business cycle.
That said I do look at companies in my portfolio as a business owner and so I would not rush to sell them just because their performance improves and valuations rise so long as the runway ahead seems sufficiently long.
Selling early. One name in the transmission space sold too early, valuations were looking steep. In the construction space, a company which was then facing government investigations on aiding corruption and the company clarifications were a bit below our threshold of transparency.
Not buying enough. But that is par for the course in this business. Not sure if there are any easy solutions to this, it will ultimately be a subjective judgment. Can only hope to reduce the number of mistakes by not repeating them.
They say it is difficult to differentiate being too early from being wrong. The right mix of long-term and medium bets is always tough, do not expect that to be easy even in the future.
On another front, the regulatory environment is changing rapidly, sometimes I get the feeling we as a market may be trying to run before we have learned to crawl.
Communicating with investors on keeping a long-term focus is also a challenge, as expectations are at times at some distance from reality.
Hobbies and other interests
Some bit of reading, listening to music, some badminton on occasion. Stay fit through Pilates and cardio.
Picked up a few traits from my bosses, hopefully, all positive and still learning. I think for readers an easier way to relate to my ideals is perhaps through two fields very close to our national cultural ethos, Cricket, and Bollywood.
As a cricketing metaphor for a role model, I would aspire to be a Rahul Dravid or if it is a Bollywood metaphor it would probably be Aamir Khan.
I think fund management is more like test match cricket, one has to think of which balls to play and which to leave. Take that a bit further, stock selection is a lot like stroke selection, you cannot try to hit a six off every ball, when ultimately what matters is how many runs you scored. If you get out too early then that is just an entire run-scoring opportunity gone to waste.
I consciously am trying to improve my game both at the professional and personal level. Attempting to refine my thought and work processes and look to insights and inputs from all quarters, including people I meet every day and from whatever I can read.The author is EVP & Fund Manager (Equities), Head - Research, UTI Mutual Fund.