Samco Mutual Fund (Samco MF) is the latest house to launch its first scheme. It will be called the Samco Flexi Cap Fund.
What is the scheme about?
As it is a flexicap scheme, the fund manager will have the freedom to invest across markets caps – large, mid and small-caps. However, the stocks will be filtered through Samco MF’s in-house investment framework – the Hexashield Framework. It stress tests companies on six parameters – reinvestment and growth, corporate governance and leadership, cash flow, balance-sheet and debt, competitiveness and pricing power, and regulatory.
Samco MF will have an internal universe of 125 stocks that pass the minimum threshold in the above parameters. For example, only companies with a minimum return on capital employed (ROCE) of 25 percent will pass the reinvestment criteria.
Samco MF wants to launch funds that are truly actively-managed. So, for instance, as the Nifty 500 Index is the benchmark index used for flexicap funds, Samco Flexi cap will aim to have very little overlap with the index.
While stocks could be the same as the ones in index, the allocations or weightages would vary greatly.
The fund will also have the provision to invest 35 percent of its corpus in international equities and will do so at the outset itself.
Samco Flexi Cap will only have 25 stocks in its portfolio at any given point in time. So, the fund manager will be taking high-conviction investment calls, backing it up with sizeable allocation.
“There is enough research out there to suggest that a well-diversified portfolio can be created with 20-25 stocks,” says Umeshkumar Mehta, chief executive officer of Samco MF.
He adds that the fund house’s investment framework will throw up signals for any corporate governance issues in the investee companies, and if needed the fund will exit such companies.
Keeping with Samco MF’s investment strategy, the Flexicap Fund aims to invest in high-quality companies that can compound their earnings over the long term. “This approach will also help in keeping the volatility low in the scheme,” Mehta adds.
As the fund will be run almost like a focused fund, concentrated stock bets may go wrong, and could heavily impact the overall scheme returns.
“If executed well, such an investment strategy could lead to potential outperformance, but if concentrated bets in any sector or stock go wrong, they can impact returns,” says Amol Joshi, founder of Plan Rupee Investment Services.
While a fund avoiding overlaps with its benchmark index is welcome in an actively managed scheme, there may be periods when the fund underperforms its benchmark index as well as its peers due to its differentiated portfolio construction.
“This impact can be heavy, especially if markets turn polarised and only few index heavyweight stocks contribute to market gains,” says Kirtan Shah, co-founder and chief executive officer of SRE Wealth.
Such polarised markets were seen back in 2018 and 2019. However, the stock markets have seen a broad-based market rally since the crash of March 2020.
Moneycontrol’s takeAlthough Samco MF's fund managers are new to fund management, it seems to have started its mutual fund journey on the right note by putting in place a well-laid-out investment process. Most flexicaps have been large-cap focused, so it would be interesting to see how Samco Flexi Cap builds its portfolio of stocks. It would be better to wait for the scheme to build a track record before considering it. The NFO is open till January 31, 2022.