Bottom-up, alpha generating global best ideas fund
Senior Fund Manager
DHFL Pramerica Asset Managers
WF: International funds have historically been launched in India during bouts of currency weakness – like what we have seen recently. Is international diversification primarily a currency hedge for those who have foreign currency obligations or is there a more meaningful positioning for these funds in Indian investor portfolios?
Alok: Currency hedge is one of the benefits that investors derive from investing in the international funds. Globally there are many businesses from various sectors that have managed to redefine their industries through disruptive innovation. Industries born out of disruptive innovations are unique investment opportunities that are driving profits globally and are contributing significantly to global equity returns. For e.g. internet usage has driven the growth of large internet platform companies that have benefitted from higher advertising revenues, stronger e-commerce sales, burgeoning mobile payments and explosion in video streaming among other applications and services. It’s virtually unprecedented for companies with hundreds of billions of dollars in revenue to continue to realize double-digit growth. Indian investors have limited opportunity to participate in such themes through domestic stock markets. International Funds bridge this gap. Also, geographical diversification brings down volatility of the overall portfolio.
WF: Does the underlying fund adopt a “go anywhere” approach in identifying its 35-40 top picks or is it benchmark aware in terms of geographical allocation when casting its portfolio?
Alok: The fund maintains flexibility to invest across the entire global equity landscape to seek out strongest investment opportunities around the world through a focused portfolio of 35-45 stocks. Investment approach is unconstrained by benchmark, region or market cap, which can result in very low overlap with the benchmark. As of 30/09/2018, 91% of the fund portfolio differs from its benchmark MSCI All Country World Index.
WF: The underlying fund reported sharp underperformance vs benchmark in 2016 and then more than made up in 2017, even as long term alpha has remained healthy. Given the relatively concentrated nature of its portfolio, should one expect such sharp deviations in future too?
Alok: Any concentrated portfolio tends to have a higher volatility than the benchmark. Deviations cannot be ruled out in future.
WF: The underlying fund (PGIM Jennison Global Equity Opportunities Fund) is significantly overweight IT (42% vs 20% for benchmark) and consumer discretionary (32% vs 12%) while being significantly underweight financials (2% vs 17%). Are the risks associated with such a sector agnostic approach justified by the fund’s alpha? How does the fund stack up on risk adjusted parameters?
Alok: Fund has successfully captured the growth cycle in the past delivering 4-5% alpha over its benchmark across 1 year, 3 year, 5 year and since inception. Other ratios are
WF: Internet oriented stocks (Amazon, Alibaba, Netflix, Tencent) dominate the portfolio – these are widely viewed by many experts as potentially overvalued and have seen bouts of significant corrections recently, with FAANGS stocks having a rough CY18 so far. What is the fund manager’s perspective on owning these stocks at this stage?
Alok: Difference of opinion on valuation amongst market participants creates the market. Popular tech giants reported good earnings overall for the third quarter. However, as confidence in the markets has wavered, there weren’t strong rallies in these stocks. To the contrary, after a fairly linear growth trajectory and record highs in 2018, many tech heavyweights have seen their stock prices pull back. The Jennison Associates Growth team continues to have conviction in these companies based on their strong expected growth characteristics and more attractive valuations. Of course, given that these stocks are not immune to increasing trade tensions and other macro headwinds, the Jennison Growth team will continue to closely monitor the potential earnings impact on a company-by-company basis.
WF: What would you say is the key investment argument for Indian investors to consider this fund now?
Alok: Diversification across geographies giving exposure to unique high growth businesses that do not have representation on the Indian bourses is the key proposition for investors.
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