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Always On The Learning Curve

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In a subdued stockmarket, maintaining growth can be easy if one invests in ‘safe’ stocks. But it is a rare fund manager who can churn his portfolio 3-4 times a year, invest against current subdued business sentiment, take calls on the future, and succeed in all three instances. Meet P.V.K. Mohan, head of equity at Principal PNB Asset Management Company, whose Principal Growth Fund is a diversified fund with average assets under management (AAUM) of Rs 273 crore.

How did he do it? By spotting the obvious growth story in the business he invested in. Principal Growth Fund took risks in businesses such as digitisation of cable TV, and invested in tyre companies when it realised the automobile industry was going through a slowdown. “Isn’t it logical that more people would want to upgrade their tyres when they postpone buying of new cars in a slow market?” asks Mohan. His nature is to be aggressive and increase returns even in a downtrend, while maintaining a non-volatile stock portfolio.

For this graduate of the prestigious Indian Institute of Management, Bangalore, learning came from managing the internal portfolio of IL&FS in the mid-nineties. “I was also an electrical engineer with some experience in industry,” he recollects. “Back then, we wrote analyses to understand whether we would get our investments right or wrong.”
2. Reliance Equity Fund
3. Reliance NRI Equity Fund
It is from the mistakes he made during the early days of trading that he picked up most of his knowledge on how to survive during a downturn. “Back in the late-1990s, the only stocks we invested in were IT companies,” he recalls. “And then, 2001 hit us very hard, when the dotcom boom became a bust.”

He will tell you that intense learning from research, and benchmarking with global macro events helped him and the team at Principal mutual fund choose the right investments. For example, the fund took risks on the banking sector, media companies and auto ancillaries. Banking stocks were less volatile, media stocks gave it higher returns, and auto ancillary stocks balanced a quick-risk-and-reward portfolio.

Mohan’s key performance indicator is the portfolio turnover ratio (PTR), which tells him how many times he has traded the value of his portfolio in the year. In 2012, it stood at 1.10. After 2009, the PTR was 0.70, but active trading by his team in some stocks ensured his fund’s NAV went up.

Even after increasing his PTR, the cash level in the portfolio is less than 5 per cent. “We took some risks last year; we invested in the real estate sector when the industry was written off,” says Mohan. His fund’s performance in the Crisil rating of mutual funds — which, he says, focuses on sharper variables like the concentration in certain sectors, the risk numbers, and deviations from the benchmark — is another important indicator.

“Third-party validations are always important when you are a fund manager,” Mohan says. “They tell you if you have been picking right; more importantly, it backs up the internal research of an AMC. We looked good, by those yardsticks.” This philosophy of learning and benchmarking has helped Principal Growth Fund reach the top spot in its category.

1-YR RETURNS 45.71%
ITC 4.61%
*BSE-200. Data as on 31 Dec 2012. Cash and cash equivalent are not considered for holdings
Source: Ace MF database

What next? Mohan believes the best is yet to come for the Indian economy; in the next couple of years, by his estimates. In his opinion, foreign investors got the India growth story right and were bullish compared to domestic institutions and funds. “Growth in western economies is close to negative, so investments will come here, as we reach 6 per cent GDP growth or more,” he says as an explanation to his belief in India’s future. However, clearly, that by itself is not going to be enough to ensure great fund performance. But combined with Mohan’s experience and readiness to learn, we could see his funds here again next year.


(This story was published in Businessworld Issue Dated 11-02-2013)