BoI MF has launched its Value Fund which aims to go a lot deeper into the mid and small caps spaces in the quest for value opportunities than many peers which tend to be more large cap oriented.
Alok says the emphasis will be on identifying rate of change in the fundamentals of a company (whether a turnaround candidate or a business at an inflection point) which can drive sizeable ROCE gains, thus delivering substantial re-rating in the process.
Valuation framework will be a critical input into stock selection. That said, there can’t be a single valuation metric that applies for all types of businesses and circumstances – one has to be more nuanced in approach.
When the stock’s changing dynamics get reasonably well discovered and growth investors climb into what will likely evolve into a compounding story, that’s the cue for his value fund manager to look at an exit and redeploy in the next value opportunity.
The portfolio will be well diversified, with stock caps typically placed at 5%.
Businesses that are seeing a lot of Government support typically are at growth inflection points that are interesting for a value fund manager. There are many such examples within the broad manufacturing space at present.
Mature businesses where one can’t reasonably expect a lot more penetration can morph into value traps – one has to be very careful in theses spaces. Banks could be a candidate in this regard.
Pure / traditional value investing delivers its best results during a crisis and in the immediate recovery from such crisis – as margin of safety of value stocks cushions their fall relative to others. The problem is that crises don’t happen often – and value can underperform for intervening periods of time.
Recognizing this, Alok says their approach will be a blend – to capture what value captures best but at the same time, keep the score board ticking during these intervening phases to enable a slightly more linear outcome for investors.
Alok cautions that one has to be a patient investor tomake the most of value investing. One should have at least a 5 year horizon to consider a value fund.
An ideal positioning for a value fund is to be part of the core portfolio of an equity investor, complementing other growth style funds that may already exist in it.