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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: CY2015 was a difficult year for markets. Your fund posted a healthy alpha in challenging conditions, though the absolute return was understandably modest. What does your attribution analysis suggest as key sources of alpha in CY15?
Neelesh: We have generated returns over the benchmark, by being in the right pockets as divergence across sectors and stocks within a sector has been significant in CY15. Disciplined approach to investing, with focus on "quality up to a reasonable price", has helped us deliver as satisfactory track record.
Our attribution analysis suggests that at an aggregate level, alpha generation has been from stock selection, rather than sectoral calls.
WF: CY16 has started on an uncharacteristically weak note, relative to your fund's robust performance track record. Have you made any changes to portfolio strategy or composition? How do you plan to maintain your unbroken record of Y-o-Y positive alpha?
Neelesh: Fund performance need to be judged on long term time frames (3 -5 yrs.), particularly in the context when CY16 YRD has been quite volatile.
Broad investment approach as enumerated above will remain same. We would continue to focus on stock selection to generate alpha. We strongly believe that stock selection is important within as sector due to variance in factors like earnings growth, management, capital efficiency, valuation, etc.
On a sectoral basis, we have not made significant changes. We have added weight in in consumer discretionary and healthcare, etc.
WF: What is your sense on global equity markets? Is the global equity bull market now living on "borrowed time" or does it still have room for more growth? Will we continue to see liquidity supporting asset prices indefinitely until fundamentals justify market levels or should we prepare for a reality check?
Neelesh: It is complex subject to do forecast as the same is difficult, given the mixed results / data points. Most countries are relying only on monetary policies to support growth. We are seeing positive impact of fiscal stimulus in certain geographies like China. Overall, it's going to take time for recent policy action in Europe to be effective. We would go by the assumption that marginal rate hike in US as long as it is in line with market expectations, it should not make much of difference to Indian markets.
WF: Is this a time to focus only on the domestic theme or should one look at commodities and metals as a contrarian / value buy?
Neelesh: Domestic theme is more structural and long-term, and Commodities are more tactical calls. Commodities re-rate very fast, as has been witnessed over the last three months. We believe that the best time to buy commodities is during extreme pessimism in that context. There are three reasons for recent spike in commodity prices (many commodities are up 30% from recent lows): (a) near term supply re-adjustment (b) More dovish US data which led to weaker USD; and (c) Pick up in China infrastructure activity.
At an aggregate level, Commodity markets have positive impact on Indian equities. It helps mitigate stress in these sectors both domestic market as well as globally. We have recently seen bit of restocking in steel - and related impact on beaten down stocks in the sector.
Separately, many consumer related businesses had expansion in gross margin owing to low commodity prices - we are internally, building in on assumption that some of these margins will be reduced going forward.
WF: Are PSU banks value buys or value traps in your opinion?
Neelesh: We do not have exposure to PSU banks, except one. We prefer Private Banks with corporate exposure to PSU banks. Worst of incremental accretion to stress should be over - however, the recognition of past stress will be over the course of next financial year, i.e., up to March 2017. Recent improvement in commodity sector particularly steel, should help what was otherwise severe stress in the system.
WF: Within the domestic theme, are you at the margin increasing exposure to the cyclical theme or the consumption theme?
Neelesh: Within domestic theme, we have higher exposure towards consumption theme -across subsectors like Staples, Discretionary spends, Media, etc.
WF: What is your overall outlook on Indian equities over the next 12-18 months and what do you see as the key drivers?
Neelesh: We have constructive view on indices, and it is unlikely that recent lows will be retested. Overall, returns will be driven by extent of revival in earnings, which have been muted for the last two years.
Earnings recovery should happened by H2-FY17. After two years of muted growth, we expect recovery in FY17, when the current disconnect in favourable macros is translated in volume growth both on the investment side, as well as consumer side.
WF: Some experts proclaim that we are still in a new secular bull market run (even though the Indian stock market corrected by 18 - 20% from its last peak). While some are more guarded as they feel the recent run up is a hype rally only and soon settle to realistic levels. What is your take on the current market and what do you see as the key drivers for markets in the next three to five years?
Neelesh: India's attractiveness on growth has increased, in a world which is starved for growth. The outlook for Indian economy continues to be strong due to a recovery that is firmly underway. Unlike most emerging markets, India has secular drivers to growth. The government is on the right track and is making good progress on most fronts. This is probably the best pace of reforms that India has experienced in a long time.
Over the next 3-5 years, key drivers for markets will be revival in earnings, and improvement in incremental ROCI (return on invested capital). India Inc. profit as a percentage of GDP is currently at multi-year low and is expected to revert to normal.
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Fund Focus: Mirae Asset India Opportunities Fund
