Click here to know more about percentiles and the colour codes
What do percentiles and their colours signify?
Fund performance is typically measured against benchmark (alpha) and against competition.
Performance versus competition is measured through percentile scores - ie, what
percentage of funds in the same category did this fund beat in the particular period?
If a fund's rank in a year was 6/25 it means that it stood 6th among a total of
25 funds in that category, in that period. This means 5 funds did better than this
fund. In percentile terms, it stood at the 80th percentile - which means 20% of
funds did better than this fund, in that particular period. If, in the next year,
its rank was 11/26, it means 10 other funds out of a universe of 26 did better than
this fund - or 38% of funds did better than this one. Its percentile score is therefore
62% - which signifies it beat 62% of competition.
Most fund managers aim to be in the top quartile (75 percentile or higher) while
second quartile is also an acceptable outcome (beating 50 to 75% of competition).
What is generally not acceptable is to be in the 3rd or 4th quartiles (beating less
than 50% of competition). Accordingly, we have given colour codes aligned with how
fund houses see their own percentile scores. Green colour signifies top quartile
(percentile score of 75 and above), yellow or amber signifies second quartile (percentile
scores of 50 to 74) and red signifies 3rd and 4th quartile performance. A simple
visual inspection of colour codes can thus give you an idea of how often this fund
has been in the top half of the table and how often it slips to the bottom half.
A great fund performance is one which has only greens and yellows and no reds -
admittedly a tall ask!
WF: Your fund presentation talks about a value bias. Is it a challenge to find good ideas now - at a time when market valuations are above long term averages?
Amit: Invesco India Contra Fund is a multi-cap fund with a Value bias. We have preference for companies in turnaround phase, the ones that are trading below their intrinsic values or those which are de-rated/under-owned.
There are times when market offers abundant opportunities to identify companies in turnaround phase and those trading below intrinsic value and then there are times when such opportunities are limited. These are those instances when the relative valuations play an important role in identifying the attractiveness of sectors and companies within the same sector.
Then again, in all market conditions, there is always a case for market being over optimistic or over pessimistic about the prospects of a particular sector or a company. For eg: Information Technology sector has got de-rated over last 1 year to 18% below long term average even as market valuations are 14% above long term average.
WF: Fund managers with a strong focus on valuations have struggled in the last 3 years, when quality has been chased by the market, even at expensive valuations resulting in expensive stocks getting more expensive yet turning in the best performance. How have you coped with this challenge? Do you see this trend changing, going forward?
Amit: While value oriented strategies have struggled over last 3 years, Invesco India Contra Fund benefitted from
Early overweight positions in the sectors like Consumer Discretionary and Industrials in 2013, based on their attractive valuations and cyclical positioning then. In fact Industrials sector overweight position was built not only before general or state election results but even before the announcement of candidature for the post of the Prime Minister.
Booking profits in the Industrial sector post 2014 given the expensive valuations and reallocating the weights to Consumer Discretionary and Utilities sectors.
Avoiding value traps by avoiding companies with balance sheet risks.
Invesco India Contra Fund focuses on companies/sectors which are ignored and thus available at attractive valuations.
WF: You place a keen emphasis on spotting turnaround stories - a theme that holds a lot of intuitive appeal when an economy is coming out of low growth - like we are witnessing in India. Which are the sectors/themes that lend themselves most to turnaround stories? Which have been some of the turnarounds you have invested in during CY16 and how are these stories playing out so far?
Amit: As Indian economy is in the early stages of macro economic recovery, companies in a turnaround phase are more from cyclical sectors like Industrials, Financials and Consumer Discretionary.
WF: In your experience of betting on turnaround stories, what has worked better: a good top down call on sectors turning around and then identifying the best stocks within the sector or purely bottom up focused calls on individual businesses?
Amit: Invesco India Contra Fund focuses on generating alpha from both stock selection (bottom up) as well as sector allocation (top down). Out of the 80% of alpha generated by the fund over last 3 years ended Sept 30 2016, stock selection has contributed 65.85% whereas sector allocation has contributed 14.32%. This shows that both bottom up and top down calls are important for Invesco India Contra fund to generate alpha.
WF: Are metals a good contra theme now? Is there a sectoral turnaround here?
Amit: Metals sector was available at attractive valuations last year due to the commodity price collapse. We did invest in a few companies but the overhang of debt in many of the companies restricted our choices. Over last 1 year the sector has been re-rated and there is a need to focus on bottom up stock selection to identify companies trading below intrinsic value or in a turnaround phase.
WF: Your fund allows you to be market cap agnostic, yet you have broadly stuck to 40-45% in large caps and the balance in mid caps. Is there a case to be more aggressive in moving across market cap segments to discover value?
Amit: As of 30th September 2016, the fund had 40.5% exposure to large caps. But if we look at the data as of Sept 2012, the fund had only 19.4% exposure to large caps and 77.6% exposure to mid-caps. In 2012 Midcaps were trading at a discount to large cap stocks and as mid-cap valuations have re-rated over last 4 years, exposure to large cap's has increased from 19.4% in Sept 2012 to 40.5% in Sept 2016. So as you can see the fund does move its market cap exposure and this is an outcome of valuations.
WF: From a fund positioning perspective, should this fund's performance be viewed in the context of value funds or a more generic category of diversified equity funds? How should this fund be positioned in investor portfolios?
Amit: Invesco India Contra Fund is a multi-cap diversified equity fund that has a value bias. It belongs to the core basket of diversified fund in investor's portfolio. Since it is early to take on risk, it has the potential to generate higher alpha as compared to generic diversified equity funds. The strategy provides investors an opportunity to benefit not only from Earnings growth but also P/E re-rating.
DISCLAIMER: The views are expressed by Mr. Amit Ganatra, Fund Manager - Invesco Asset Management (India) Private Limited. The views and opinions contained herein are for informational purposes only and should not be construed as an investment advice or recommendation to any party or solicitation to buy, sell or hold any security or to adopt any investment strategy. The sectors referred above should not be construed as recommendations from Invesco Asset Management (India) Private Limited and/or Invesco Mutual Fund. The Scheme may or may not have any present or future positions in these sectors. The views and opinions are rendered as of the date and may change without notice. The recipient should exercise due caution and/or seek appropriate professional advice before making any decision or entering into any financial obligation based on information, statement or opinion which is expressed herein. Invesco Mutual Fund/ Invesco Asset Management (India) Private Limited does not warrant the completeness or accuracy of the information disclosed in this section and disclaims all liabilities, losses and damages arising out of the use of this information.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
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