Samco Mutual Fund (MF) became the latest fund house to start is business in the Rs 36 trillion mutual fund industry. The fund house announced its launch on September 14, and said that it wants to launch MF schemes that truly give investors actively-managed portfolios, that are different from the market indices.
“We have observed that there are lot of equity MF schemes out there that are largely index hugging. We want to offer investors active fund management, when they are paying us active fund management fee,” said Jimeet Modi, founder of Samco MF.
Apart from daily NAVs, the fund house will also be disclosing active share of its portfolios on a daily basis, so that investors know how much its scheme differentiates itself from indices.
Investors will get to see how much of the scheme overlaps its benchmark index in terms of stocks and the proportion in which they are held in the scheme and how much of the scheme portfolio is different than the index.
Modi said that over time the fund house wants to be charging total expense ratio of one percent to direct MF investors. The expense ratio for regular plans, which are sold through distributors, include distribution commissions as well.
In the initial set of schemes, the fund house will be filing for a flexicap fund, a global active fund and a tax-saving fund.
Samco MF will be including both international and domestic stocks in its portfolio. However, Modi says the fund house doesn’t want to include too many stocks in the portfolio as it could dilute the benefit of diversification. “Around 15-20 stocks are usually enough to have a well-diversified portfolio. We don’t want to just keep adding stocks and end up overdiversifying,” he said.
Trying to build portfolios that can stand stress
At the heart of the fund house’s investment strategy is finding businesses that can withstand stressful times in the markets.
The fund house will use its Hexashield Framework to identify such stocks. As the name suggests, each company would get tested on six parameters -- reinvestment and growth stress tests, corporate governance and leadership stress tests, cash flow stress test, balance-sheet and debt stress test, competitiveness and pricing power stress tests and regulatory stress tests.
Modi said that while their investment process would also take care of avoiding business at unreasonable valuations, but the focus would be to look for companies that can build long-term growth over the years.
The fund house’s long-term analysis of the US index -- S&P 500 -- shows that only 20 percent of the index’s returns were contributed through valuation re-rating, while 80 percent were because of earnings growth.
“We want to look for resilient companies that can protect downside when there are big market shocks. The average life expectancy of business have reduced sharply over the years. So, it is important find businesses that can survive over the years,” Modi added.
Samco Securities, which is the sponsor for Samco MF, would also be able to take advantage of its distribution arm Rank MF to grow its MF business.
The country’s largest MF distributor NJ India, which has also recently started its business, on September 13, 2021 announced filing of its first MF scheme.Soon MF investors can have lot more MF schemes and fund houses to choose from, as several financial companies and PMS firms are getting ready to set their own MF businesses.