HDFC MF has launched its Innovation Fund which selects its investment universe on the basis of a comprehensive scoring system (from 1 to 5). Stocks that score 3 and above make the cut with those having scores of 4and 5 being preferred.
Only 10% of the universe of traded stocks (only 235stocks) makes the cut of getting 3 and above in this scoring system, underlining the efficacy of the innovation filter that Amit and his team use.
Parameters differ for different businesses – it could be targeted R&D spend for pharma companies or the business model itself for platform disrupters or innovative design and features for auto companies, to name a few.
Sectors that are likely to find prominent space in this new fund’s initial portfolio can include healthcare, auto, consumer discretionary, IT, MNC industrials, EMS, defense and specialty chemicals.
Expect exposure to financials to be less than broad market index weight for the sector.
Sectors that don’t find much prominence in this fund’s universe include metals, cement, traditional power companies.
A robust scoring system that allows only 10% of all stocks to make the grade into its universe promises to be true to label in terms of investing in innovative businesses – which as the world has seen –have been significant alpha generators over time across markets.