Interview

 

Sunil Subramaniam
MD, Sundaram AMC

"It Is Absolutely Critical That An Investor Has A Financial Plan"

With its very intensive research-driven, bottom-up stock-picking approach guided by growth at a reasonable price (GARP) principle, Sundaram Asset Management Company has always adopted a consistent overarching sector view. In this interview, Managing Director Sunil Subramaniam elaborates about the company’s performance in a sluggish market and its overall vision about future growth

How has been the response to your recently launched NFO? Do you see investors still willing to invest in the equity market in general and NFO in particular?

The response to the NFO has been very positive since we collected Rs.358 crores from over 30,000 investors despite very volatile market conditions. This response and the monthly equity net cash numbers for the industry rising month-onmonth indicate that investors are sustaining their faith in equity mutual funds.

Credit events such as IL&FS, Essel Group and DHFL had adversely impacted the debt mutual funds, specifically, the credit risk funds and FMPs. The latest AMFI data shows an outflow of Rs.2,269 crores from the credit risk fund. What is your perspective about this event?

The losses suffered by retail investors in debt funds has come as a big shock to them as they had invested in these funds as FD substitutes – hence, the outflows. But this has been a big learning curve for the industry and for investors and over time this is a healthy thing as erroneous purchasing of these products will come down and there will be better alignment between the interests of investors and that of fund managers.

What has been the reason for abandoning the sidepocketing? Do you think the regulator should be more flexible in allowing fund houses to do side-pocketing? Don’t you think this will allow some opportunist investors to gain at the expense of other investors?

We have not abandoned side-pocketing. In fact, now all of our debt funds carry the ‘ability to side-pocket’ if and when needed. What we had withdrawn was the decision to ‘side-pocket the DHFL exposure’ as an ‘event of default’ as defined by the SEBI circular, that is, a rating downgrade had already taken place on June 4, at which time we did not have the ability to side-pocket. We had initially proposed to side-pocket on account of the actual default by DHFL on August 16 but withdrew it as we obtained a clarification that only a credit downgrade qualifies as an event of default. We don’t have a view on flexibility as rules are rules and have to be followed. There are other ways to minimise opportunistic investing such as the introduction of stiff exit loads closer to the date of any possible resolution of troubled assets.

"Tactical asset allocation is fraught with risk as investors inevitably use past performance to decide about future asset allocation."

Sundaram Select Focus Fund being a large-cap fund has underperformed its benchmark with Nifty 50 TRI. So, what are the factors that have led to such an underperformance and what will be your advice to investors?

Sundaram Select Focus Fund has beaten its benchmark, the Nifty 50 TRI, right from a three-year period to a three-month period. Any period older than that is not a correct comparison as the current fund manager has been managing the scheme only for less than three years. In fact, when compared with the pool of 29 large-cap funds in the industry, as per Value Research data, the fund is ranked 2nd on a three-year timeframe and is consistently in the top two quartiles right through ever since the current fund manager has been in charge.

Apart from Sundaram Infrastructure Advantage Fund, Sundaram Mid Cap Fund and Sundaram Small Cap Fund, all the equity funds adopt growth strategy and have major allocation towards large-cap. So, why do you have to stick to the same strategy while others are hopping between the strategies depending on the markets?

When we construct a portfolio with a four to five year perspective, which is Sundaram Asset Management Company’s general approach, we have to identify a strategy for each scheme and stick with it. Especially since we have a very intensive research-driven bottom-up stock-picking approach guided by growth at a reasonable price (GARP) principle. We have to therefore adopt a consistent overarching sector view. In our view ‘you cannot hunt with the hounds and run with the hares’ at the same time. This philosophy has paid handsome dividends for our long-term performance as seen by the fact that across all our funds, on a rolling returns basis, there has seldom been capital erosion experienced by a investor if he or she has stayed invested over a five-year period.

What should be the investing approach of an investor? Do you think that everyone should have a financial plan in place before investing or investing in good funds is the right course of action?

It is absolutely critical that an investor has a financial plan before investing because the timing of exit from a scheme is far more important than the timing of entry. The well-prepared financial plan in consultation with an advisor will guide not only the time horizon of each investment but also ensure proper exit when the goals laid out under the plans are attained.

What are your thoughts on asset allocation? For retail investors, is strategic asset allocation better than tactical asset allocation?

Tactical asset allocation is fraught with risk as investors inevitably use past performance to decide about future asset allocation. A strategic approach, drawn up in conjunction with a financial plan with well-demarcated goals, will ensure that asset allocation gets modified based only on the investors’ needs and timeframes and not the vagaries of the stock market and of the emotional reactions of investors in a typical ‘fear versus greed’ toggle.

With its re-categorisation circular SEBI came up with a new sub-category in equity schemes viz. large and mid-cap funds where you are one of the best. So, in your opinion, what is the advantage of investing in these funds and who should invest in them?

The advantage with this category is that there is a 35 per cent minimum that need to be maintained in large-caps as well as in mid-caps stocks. This ensures that you get inherent risk mitigation from the underperformance of any one cap curve. This also ensures that the riskier small-cap segment does not get more than 35% allocation. Plus, the fact that the Nifty Large Mid-Cap Index is the benchmark ensures that a balance is always maintained. Thus from a view of optimising the riskreward framework, is appropriate for moderate risk-oriented investors to invest in this category.

*Mutual Fund investments are subject to market risks, read all scheme related documents carefully.