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Neelesh Surana of Mirae Asset shares covid-proof mutual fund investment strategy


Equity Mutual fund schemes of Mirae Asset Mutual Fund have been consistent performers across most categories.In an interview with Avneet Kaur of LiveMint Digital, Neelesh Surana, CIO, Mirae Asset Management discusses his investment strategy to stay at the top. He also explains the investment strategy and an ideal mutual fund portfolio for investors to keep them afloat during the Covid times. “We continue to prefer large caps, and would advise investors to allocate about 70% towards large-, or multi-caps funds,” says Neelesh Surana.

Most equity schemes of Mirae Mutual Fund have delivered a great performance. Mirae Asset Large Cap Fund and Mirae Asset Emerging Blue-chip Fund are topping the SIP return charts in their respective categories in the 5-, and 10-year periods. Mirae Asset Focused Fund, Mirae Asset Tax Saver Fund are in the top quartile in their respective categories on the basis of their performance. What is the unique strategy to stay at the top?

I would like to emphasize that our approach is team and process-oriented, and the performance results is primarily driven by the contribution from the research analyst team. Overall, a disciplined approach to investing, with focus on “quality up to a reasonable price”, has helped us deliver a satisfactory track record. The focus is more on stock selection, through bottom-up approach in growth companies, available at a reasonable valuation. Our attribution analysis suggests that at an aggregate level, alpha generation has been from stock selection, rather than sectoral calls.

On portfolio construction strategy, we seek to construct diversified portfolio, which could handle mistakes and deliver decent risk-adjusted returns.

Mid caps and small caps have shown some recovery in the last one month. The BSE Midcap and Small cap index have risen by around 10% in one month. Do you believe the space will continue the upward movement in the near term? Should mutual fund investors increase their allocation to mid-and small-cap funds now? Is it the right time?

At an aggregate level, there is not much of discount between valuation of mid caps Vs large caps. Our view is that only strong companies will become stronger. In this context, within mid caps, companies with strong balance sheet, thought leadership of management will be better able to weather the challenges. Select mid caps will emerge stronger post the ongoing crisis. From portfolio allocation, our recommendation will be to invest about 25-30% in midcap funds and avoid small caps.

Pharma sector has grown by 52% in the last one year. Some analysts believe the sector will continue similar performance for a few more years. What is your view on the sector performance? Is it still attractive to enter?

Healthcare should remain a core category given long term structural growth as well as near term tailwinds of being covid proof. It benefits from secular driver of favorably demographics along with increasing health spend in India, as well as export potential given India’s competitiveness globally . However, given the sharp uptick during last one year, we would not advise lumpsum investment at the current juncture, but would advise more graded SIP investments.

What is your view on the technology sector?

On demand generation, we are positive on the sector as it will see benefit of pent up demand across most businesses, and also acceleration of IT investments in certain select areas related to digital, security, etc. On demand fulfilment side, the technology sector margins will benefit from higher offshoring given the adoption of remote working, and also realize savings from travel and rent costs

Which are the sectors to consider investing around this time?

Our approach has been to focus on businesses which could emerge stronger post the ongoing pandemic. In the current environment, there are many opportunities in businesses where the long-term prospects are intact, although the near-term could be impaired. We are positive on businesses where the profitability ratios will ‘revert-to-the-mean’ over the next few years. These include banking, consumer discretionary, etc.

Sector mutual fund schemes have outperformed all other categories in the last few months. Should mutual fund investors invest in them? What is an ideal mutual fund portfolio for investors at this time?

At an overall level, we would advise investors not to get deterred by noises and follow a well-crafted asset allocation with balanced weight to equities. Many a times the action required is “nothing” i.e. simply following a well-disciplined asset allocation with planned diversification. We expect meaningful returns to investors with patience.

Sector funds should be limited to about 15-20% in portfolios. We continue to prefer large caps, and would advise investors to allocate about 70% towards large or multi-caps funds. Our preference for large companies is due to superior risk-adjusted returns, a decent growth profile, and the fact that large franchises are better able to weather challenging times.

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