Spotting Young Investments

Kenneth Andrade appears to be a mellow sort of a person but when it comes to his mutual fund, IDFC Premier Equity Plan A, he has an aggressive view on the growth prospects of consumer-driven industries. The fund has limited subscription (more on that later) and was launched in September 2005 with an initial AUM (assets under management) of Rs 320 crore. Over the five-plus years since launch, the fund's AUM has increased to nearly Rs 1,829 crore at end-December 2010.

It has a diversified portfolio of about 30 stocks that together have an average market capitalisation of over Rs 7,200 crore. The fund's performance, too, has been commendable — it beat the category average all through the five years. In 2007, returns jumped 110 per cent when the category's average returns was about 64 per cent. The fund's three-year return was 7.75 per cent, much higher than the -2.51 per cent returned by the benchmark BSE 500. In 2010, it returned a solid 32.07 per cent, while the benchmark index returned 16.35 per cent.

Some of this performance comes from Andrade's approach. "We position the fund as if it is in the early stages of investing," he says. "To find opportunities from that standpoint, you need the right risk profile, be ahead of or early on the curve, and then rise with the company through five-year cycles, or more." And this is what the fund does.

IDFC Premier Equity Plan A is a growth-oriented fund that looks for mid-cap stocks with solid business models and high growth prospects in the consumer boom — no mean feat considering that there are about 1,800 companies in this market of which just over a third, or 700-odd, are investible, says Andrade.

As for accepting investments, the fund has mostly remained closed, opening only occasionally to take in fresh subscriptions — about four times in the past five years. It last opened for subscription in January 2010 for 22 days. But investors can come in through systematic investment plans or SIPs. "We have a cap of Rs 10 lakh per investor for this route," says Andrade. "We do not like lumpy investments (which impacts the returns of unit holders already in the fund). That gives us a stable pool of funds, and steady, predictable inflows."

His picks? "We have been pretty large in the entire consumer basket and reasonably aggressive in the agriculture space," says Andrade. "Those two segments' investments account for 62 per cent of the entire portfolio." The top 10 holdings of the fund are from these two sectors, including Asian Paints, GSK Pharma, Page Industry, Coromandel Fertilizers and Shriram Transport Finance.

"We do not buy companies that build industries in themselves," explains Andrade. "In any given company, I look for scale, that is, in terms of business and growth." Last year, the fund exited Pantaloon, after staying with the company for a five-year cycle. "We shy away from any company that has significant amount of leverage," says Andrade. 

As one of the greatest gurus on mutual funds, John Bogle, put it — buy right, hold tight. And that is what Andrade is doing.

suneera(dot)tandon(at)abp(dot)in

(This story was published in Businessworld Issue Dated 28-03-2011)