Aparna believes investors expect more dynamism in cap-wise allocations from a flexicap fund to better capture opportunities across market cap segments. Their internal research suggests that most flexicap funds in the industry tend to remain large cap heavy, thus missing out opportunities in smaller companies.
The new Wealth Company Flexicap Fund will endeavour to meet this expectation by nimbly moving across cap segments based on a proprietary methodology. Large caps range can be as low as 25% to as high as 80% with mid and small caps accounting for the rest.
An indicative allocation today would be 40-45% large caps, 6-7% cash and the balance in mid and small caps.
The fund house has also found that most flexicap funds have 60+ stocks in their portfolio. Aparna believes adequate diversification can be achieved with 40-45 stocks. She does not believe in a long tail – she believes in meaningful conviction-based allocations to all stocks in the portfolio.
She does not believe in getting wedded to a particular style (growth / value / quality etc). The fund house’s approach is style agnostic, with growth, value and quality factors being included in the filters that are applied for initial stock screening.
Style agnostic approaches tend to perform more consistently – a key requirement of most investors.
The fund house aims to go deeper than many peers in company research – almost a forensic research kind of approach that PE funds employ – to sniff out potential governance issues before making any investment in the stock. This will involve numerous cross checks to validate data that companies share.
Sectoral allocations can deviate sizeably from benchmark, but within guardrails that prevent excessive risk.
Her current sectoral preferences are in sharp contrast to consensus: she sees good opportunities in IT services (not necessarily large caps), she is bullish on select pharma stocks and hospitals, she likes select capital goods companies and she sees more opportunities in non-lending financials than in lenders. On discretionary consumption – the current market favourite – she would prefer a wait and watch approach to understand how sustainable these current demand spurts will be.