After spending 12 years at SBI Mutual Fund (MF) as its chief investment officer (CIO), Navneet Munot resigned from his role last month. He will be joining HDFC MF as its new managing director and chief executive officer, in the place of Milind Barve.
In another recent change, Gopal Agrawal, who was head of macro strategy and senior fund manager at DSP MF, moved to HDFC MF as senior fund manager in July. Soumendra Nath Lahiri, who was well-known for his stock-picking skills in mid-cap and small-cap stocks, quit as CIO of L&T MF in November, 2019.
Over the years, many fund houses have sharpened and institutionalised their process of how they pick stocks and sectors. Yet the human element cannot be ruled as these are actively-managed funds. And the buck stops at the CIO’s table who heads the investment team. So, when a CIO or fund manager leaves, how much does your scheme get impacted?
Check new fund manager’s pedigree
Processes are a bit tricky to substantiate. The easier way to check if your fund house’s policies would continue, by and large, is to see who is taking over. In the case of SBI MF, R Srinivasan – head of equities and Rajeev Radhakrishnan – head of fixed income are likely to take over as joint CIOs. Srinivasan has been with SBI MF since May 2009. He joined just a few months after Munot had joined the fund house. Radhakrishnan, too, has been with the fund house since 2008. Having worked together for more than 10 years at SBI MF with Munot, the transition is expected to be smooth.
An experienced team of fund managers can also help a fund house avoid disruptions when top people leave. Small fund houses may face a problem here because their teams are small. A top fund manager or a CIO who moves on, leaves a void and the fund house may have to look outside. However, if the fund house is able to attract experienced fund managers as a replacement, its schemes can hold onto their performances.
Take the case of Kotak MF. Harsha Upadhyaya, who heads the equity team here, joined the fund house in 2012. Nilesh Shah, who was heading Axis Capital, and prior to that heading investments at ICICI Prudential MF, joined Kotak MF as the CEO in 2015. With assets of close to Rs 40,000 crore and being one of the 10 largest fund houses at the time, it wasn’t difficult for the fund house to recruit two experienced fund managers at the top level.
Another clue, about where things are headed with change in fund management, is to keep an eye on its flows. Check if the schemes are seeing outflows. Your distributors or financial advisors can give a clue. Vinod Jain, principal adviser, Jain Investment Planner, says tracking flows in the schemes is also important. “If investor outflows from the schemes start to see a sharp jump after the fund manager’s exit, it can force the scheme to sell its equity investments to honour such redemptions (withdrawals).”
Amol Joshi, the founder of Plan Rupee Investment Services, suggests investors should only think about switching out from a fund, if there is a dip in performance compared to other schemes in the category. “Track the performance of the fund for at least next two quarters,” Joshi says.
A constant drop in your equity scheme’s assets under management despite all segments of equity markets gaining, can give an indication that your scheme could be seeing outflows. You can track your scheme’s asset movement on AMFI’s website.
Investment style
When fund managers change, investment styles may change. Sometimes, it helps performance, other times it may not.
PGIM MF, a small-sized fund house with assets of around Rs 4,800 crore, appears to have turned the corner. In July 2019, Srinivas Rao Ravuri joined as the CIO-equities. Before PGIM, Ravuri was a senior fund manager at HDFC MF; a firm where he had worked for close to 15 years. His predecessor was E.A. Sundaram, a veteran fund manager. While Sundaram was the CIO-equities for the fund house’s portfolio management services division, he also oversaw the MF schemes.
Ravuri made small tweaks in the way the fund house’s equity management worked. Aside from making fund managers double up as sector analysts for at least one sector (Ravuri did that as well when he was at HDFC MF), he also added a few sectors that PGIM MF didn’t track until then. Ravuri and the firm’s CEO, Ajit Menon, also changed the way fund managers were appraised.
Fund managers were incentivised for being in the second quartile of performance, than in the first quartile. “We want to reward consistency, rather than the chase to the top. If we reward fund managers for being in top quartile, then there could be ups and downs in performance,” says Ajit Menon, CEO, PGIM MF.
More importantly, Ravuri follows the growth style of investing. Sundaram was tilted towards value styled performance. In these past years, equity markets have rewarded growth style of investing more than value. All of this made PGIM one of the better performing funds in these past two years.
Check your schemes’ portfolios to gauge your new fund manager’s style. For instance, higher investments in state-owned companies can be a clue to the value-style of investing.
New fund managers can look at the scheme with a fresh set of eyes and need not hold onto stocks or sectors earlier fund managers felt passionate about.
MF distributors say Principal MF also appears to have benefited from changes in the investment team. “Since Ravi Gopalakrishnan joined Principal MF as head of equity, performances seem to be much more stable in their equity schemes. The investment framework seems to have become tighter now,” observes Ravi Kumar TV, co-founder of Gaining Ground Investment Services.
On the other hand, when a star fund manager leaves, the schemes can also feel the pinch. For example, when KN Sivasubramanian managed the Franklin India Bluechip Fund, it consistently outperformed its peers (annualised returns of 36 percent between January,1997 and February,2008 shows data from ACE MF). In recent years, the scheme performance has been patchy and has lagged behind peers.
What should investors do?
If your CIO or scheme’s fund manager leaves, do not sell your MF scheme in a haste. Talk to your advisor and keep an eye on the scheme’s performance. If the outgoing fund manager has done well, his stock picks would continue to do well for some time before the new manager’s style takes over. It’s always best to give it some time before you take a call.
