Note to readers: Although most fund houses are process-driven and mutual fund schemes are driven by many guidelines, a money manager’s role cannot be undermined. At the heart of fund management is a core team of analysts and fund managers who track multiple sectors and companies on a day-to-day basis. And every scheme has a designated fund manager who is responsible for its long-term performance.
In this five-part series, we have identified the next generation of fund managers who hold the potential to become top performers. All of them are under 45 years of age. On Thursday, we met Shridatta Bhandwaldar, Head Equities, Canara Robeco Mutual Fund. Today, meet Atul Bhole, Senior Vice President and Fund Manager, DSP Investment Managers.
History rhymes if it does not repeat. In 2005-2006 it was IPO raining and so do they now. In those days investors queued up to buy infrastructure companies with not much visibility of profits. In recent past investors are chasing chemical and technology stocks. Atul Bhole, the 41 year old Senior Vice President and Fund Manager, DSP Investment Managers frowns at this investor behavior. “In primary market, many investors keep chasing overhyped themes hoping that a new company with limited track record may give huge profits, ignoring already well-established companies generating cash,” he said.
For him to make money in stock markets you have to buy and hold good quality companies run by professional managements and growing at a healthy rate. He manages DSP Flexicap Fund and equity components of DSP Equity and Bond Fund and DSP Dynamic Asset Allocation Fund. DSP Flexicap Fund and DSP Equity & Bond Fund rank in top quartile over three and five year period, as per Value Research. DSP Flexicap Fund has given 14.53 percent and 16.27 percent over three and five years, respectively.
Business more important than stock price
His stock picking process begins with a good quality company run by a good management. If the company has been reporting growth in profits and generating cash consistently, then he starts digging deeper to understand the business. He steers clear of all those companies where there are corporate governance issues or capital intensive nature of business or lack of growth.
Bhole does not mind paying a bit more for a quality business with growth. His portfolios have expensive stocks such as Avenue Supermart and Bajaj Finance among others. “You cannot buy gold at the price of silver,” he says. He believes that good companies reward shareholders if they hold on to those businesses for long enough despite high valuations at the time of purchasing the stock.
The talk of rising yields pulling down prices of stocks enjoying high valuations does not perturb him. “Quality businesses showing good growth enjoy high valuations for a reason. Such well managed businesses adapt themselves faster when there are regulatory changes and technological disruptions. While the low quality businesses lose market share or close down, the high quality businesses benefit from such changes and become stronger and bigger,” says Bhole.
His penchant for quality is an outcome of his stints as an analyst in his initial years. When he saw many low quality capital intensive businesses going nowhere, he preferred to take the risk on the price of the stock than the quality of the stock. Being a chartered accountant and management graduate puts him to an advantage. While the accountant makes him stay cautious and watchful of the investee companies, the manager inside him focuses on the big picture of the business. He is focused on the size of the business opportunity the underlying business has, than the existing market capitalization of the company. His investment strategy has so far worked for him. He attributes his success to the mentoring done by Bhupinder Sethi the then head of equity at Tata MF and Pradeep Gokhale, then a fund manager with Tata Mutual Fund, Bhole’s previous employer.
Ritesh Jain, former CIO and blogger at worldoutofwhack.com terms him a focused professional. He says, “Bhole is open to learning new things, admitting mistakes and working hard to deliver what is best for his investors.”
Portfolio strategy
A look through the scheme portfolios, brings forth many consumer facing businesses. Stocks of private sector lenders, companies from financial services domain, organized retail and consumer durables are held for long term and have contributed to the schemes’ returns. He likes these businesses as they generally offer high return on equity and enjoy good pricing power.
Though Bhole is a big fan of quality and growth, he does not mind taking a few tactical trades. Almost 10 to 15 percent of his portfolios are invested in tactical bets. These are stocks which may not tick all the check-boxes for a long term investment candidate, but has a near term well-defined trigger which may rerate the stocks. He is quick to book profits if the trigger plays out.
Focus on quality has made Bhole’s portfolios drift away from the benchmark indices. When the not-so quality stocks appreciate faster than the quality stocks in a typical booming market, his performance suffers. “Mistakes happen when a fund manager attempts to capture all moves in stock market. It is better to focus on quality and underperform for a while as I am here to make durable returns for investors,” adds Bhole.
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