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Stop diversifying wrongly - here is the right wayPrateek Agarwal, Motilal Oswal AMC, Mumbai

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As MO-AMC’s equity funds continue to do well, Prateek reiterates that the MO style of high quality – growth investing is just coming into its own after a spell of value outperformance, giving him confidence that his equity suite will continue to outperform in the coming years.

He addresses two key issues that come up in distributor conversations:

(1)  Are MO’s portfolios too concentrated: Prateek says the sweet spot to achieve optimum diversification is 20-30 stocks. Above 30, diminishing marginal utility sets in. All of MO’s equity funds have 20-30stocks.

(2)  Is MO a bull market manager (teji ka ghoda):Prateek suggests that if MO’s funds have performed credibly even when value was outperforming and are now accelerating when growth is coming back in vogue, that should reassure distributors that MO’s new portfolio frameworks introduced back in 2021 are helping deliver more consistent investment outcomes.

Prateek reiterates his position that investors should re-orient their fund selection strategy from assembling a collection of last year’s top performing funds (which may end up buying the market and creating a drag) to creating portfolios based on style diversity. Distributors can help them pick 1-2 fund managers who are champions of growth style investing and 1-2 managers who are champions of value investing. Staying with these 4 will give you the right diversification rather than the wrong diversification.

Prateek believes MO-AMC merits consideration as the distributors and investors preferred choice in the growth style category.

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