Motilal Oswal’s balanced advantage fund has zoomed all the way from the bottom to the top of the performance league tables since Santosh took over this fund over a year ago.
He brings his trademark go-anywhere, high conviction based style to the equity component of MO-BAF, which is delivering strong results in this market. He has no hesitation in having microcaps and small cap stocks as his largest positions, as long as they fulfil three important criteria: (1)Profitable leadership in their business segments (2) Large and growing market for the business, and (3) PEG of less than 1.
He believes in nimbly booking profits when valuations go beyond his comfort zone: some of the biggest alpha contributors of the fund are in fact now reduced to small holdings due to this disciplined profit booking, and some have been exited completely. Alpha has been contributed by a number of stocks across sectors.
He likes the health insurance and payments space within the BFSI segment and is not comfortable with banks at these levels. He believes bank margins have topped out, credit quality has topped out and volume growth is unlikely to be strong enough to overcome both these aspects – which means earnings have likely topped out.
He is now turning bullish on the IT space and in his usual trademark style, he is zeroing in on smaller niche players within this space to drive alpha.
Santosh says some BAFs try to deliver alpha through more complex asset allocation models while he focuses on trying to deliver alpha through stock selection while leaving asset allocation to the time tested MOVI model of the firm, which considers 3 valuation metrics – P/E, P/B and dividend yield.
The model is currently indicating reduction in equity from60% to 50%, which has been actioned accordingly. In rare instances, the fund manager is allowed some latitude around the model’s allocation, if the situation warrants.