4 reasons why this team is apt for a special situations oriented fund
ED & CIO
ICICI Prudential MF
WF: In which sectors are you witnessing special situations and why do you believe that they can now be ripe as investment opportunities?
Naren: At the moment there are several sectors which are witnessing special situations and we believe that many of them can be considered as an investment opportunity. Some of them are as follows:
The above instances are event/ situation based. The Scheme will invest as per the asset allocation and investment strategy mentioned in the SID of the Scheme. Above mentioned list is illustrative and not exhaustive, there are several other opportunities that may give rise to special situations
The sectors(s) mentioned in this presentation do not constitute any recommendation of the same and ICICI Prudential Mutual Fund may or may not have any future position in these sectors(s). Source: Nirmal Bang Equities. Report Dated: Oct 2018. E: Estimates. Automotive Mission Plan 2016-26. Report dated May 2018.
The information contained herein is solely for private circulation for reading/understanding of registered Advisors/Distributors of ICICI Prudential Asset Management Company and should not be circulated to investors/prospective investors.
WF: Apart from sectors in distress or sectors where new business opportunities are opening up, what are the more common kind of stock specific special situations that you have seen happening in Indian markets and how do you propose to play such occurrences?
Naren: In an Indian market context, we have seen different types of special opportunities. Some of them arise in the form of strikes, quality problems, regulation change affecting an entire sector, local and global developments owing to specific reasons etc. Many of these occurrences happen at various points in time thereby giving rise to lot of investment opportunities in a period where global markets and macros are volatile.
WF: How confident are you about populating your entire portfolio with special situations oriented stocks? What happens during phases where you may not find enough special situations?
Naren: We believe that we will be able to build a portfolio and more importantly hold on to good special situation stocks till we identify another better special situation.
WF: Since special situations globally is regarded as a subset of the value style, would it be fair to conclude that this scheme’s performance will also be more aligned with value style schemes?
Naren: We believe that value and special situation style in its investment approach is different. In case of value investing, we buy something when it is below its intrinsic value. It is not necessary for a special situation stock to be trading at a similar price as that of a value pick. At the same time, there may be stocks which are part of the value style portfolio but not be in a special situation scheme. For example: When the Maggi crisis or the Manesar strike occurred, the affected companies could be a part of our special situation scheme but not necessarily a value scheme.
WF: Special situations investing require special skills – which are not common among growth / GARP focused managers. Why do you believe your team has what it takes to manage this unique theme successfully?
Naren: We believe the willingness to dispute conventional wisdom, capacity to demonstrate counter cyclical style of investing, ability to find winners from negatively impacted sectors and high-conviction focus on long-term objectives are the key traits required to manage the scheme. Example: China Slowdown in 2015-2016 affected the metals /commodities industries in India. As a result, commodity companies were dragged down due to worries over global macroeconomic growth environment. During this period, investing in financially sound companies in the commodity space helped us generate wealth for our investors.
WF: This scheme will be classified under “thematic funds”, yet it does not lend itself to easy comparison to other thematic schemes which are more sector focused. How then should distributors build a peer set to benchmark this scheme’s performance against?
Naren: The optimal way of looking at the scheme performance would be to look at absolute returns relative to the market over a three to five year period.
WF: When discussing this scheme with investors, what key characteristics would you like them to highlight and how must expectations on performance of this scheme be set?
Naren: We would like to highlight that the scheme performance is likely to be volatile because it is a high active share scheme. In terms of risk, this scheme will be lower than a small and midcap fund. When it comes to investment horizon, the scheme should be looked at from a three to five year perspective.
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Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
The information is only for distributors and Advisors of ICICI Prudential AMC and the same should not be circulated to investors/prospective investors. All data/information used in the preparation of this communication is specific to a time and may or may not be relevant in future post issuance of this communication. ICICI Prudential Asset Management Company Limited (the AMC) takes no responsibility of updating any data/information in this communication from time to time. The AMC (including its affiliates), ICICI Prudential Mutual Fund (the Fund), ICICI Prudential Trust Limited (the Trust) and any of its officers, directors, personnel and employees, shall not liable for any loss, damage of any nature, including but not limited to direct, indirect, punitive, special, exemplary, consequential, as also any loss of profit in any way arising from the use of this communication in any manner.
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