ET Wealth
12,111.60-136.65
Stock Analysis, IPO, Mutual Funds, Bonds & More

Following our core philosophies helped the turnaround of most funds, says Vinit Sambre, DSP Mutual Fund

DSP Midcap Fund and DSP Small Cap Fund have outperformed their benchmarks and categories in the long term. Other equity schemes, including DSP Equity Opportunities, DSP Equity and DSP Tax Saver are also among the toppers in their respective categories.

, ET Online|
Updated: Dec 05, 2019, 12.25 PM IST
0Comments
Getty Images
Vinit Sambre12
DSP Midcap Fund and DSP Small Cap fund are toppers in their respective categories in the last five years. However, their short-term performance is a concern for most investors. Vinit Sambre, Head of Equities, DSP Mutual Fund, spoke to Avneet Kaur of ETMutualFunds.com, about his investment philosophy, turnaround performance of schemes, outlook for the market, among others. Edited interview.

DSP Midcap Fund, the third largest scheme in the category is topping the mid cap category in the last five years with 12.39% returns. DSP Small Cap Fund has also generated decent returns while outperforming the category average in the same period. In fact, the scheme is a topper in the 10-year period. How did you achieve this performance?
The performance is the outcome of following our core investment philosophy while selecting companies across different sectors. We look for companies which are category leaders, have the potential to outgrow the overall market growth, run efficiently in terms of ROE (we look for long term ROE of upwards of 15-16%) and managed by a very capable and competent management with no corporate governance issues.

After identifying such companies, we follow a buy and hold approach. Our portfolio turnover has been pretty low at around 30%. It means the average holding period for our set of companies is 3-4 years. Principally, we would like to invest in the business and gain from the growth of the same over the long term rather than chase prices every quarter. That, we believe, is the key differentiator which has allowed us to create the desired outcomes for our investors.

DSP Small Cap Fund, though the category topper in 2014, 2015, and 2016, fell to the last quartile in 2017 and 2018. Though the scheme has outshined its peers in the last five years, the short-term performance is a concern for many investors. Please comment.
Since the beginning, we have stuck to our core philosophy in the DSP Small Cap Fund and investors should draw comfort and confidence from this fact. We continue to look for companies with strong competitive advantages, run by competent managers, where capital efficiency is high. However, in the last few years, some of the categories where we have slightly higher exposures (like textiles, auto ancillaries, building materials) have underperformed due to their businesses going through a low cycle. However, we have focused on category leaders in these sectors as well, and as the cycle turns, we expect the performance to return.

Having said so, since the beginning of 2018 the underperformance gap for DSP Small Cap fund has narrowed quite a bit and the short-term performance has started improving.

I would like to reiterate to our investors that our approach has been fundamentally the same. This category takes a longer time for the cycles to play out and returns could be back-ended at times. We advise investors to draw comfort from a high-quality portfolio and exercise patience and remain invested with a long-term view.

Data shows there is not much difference in the returns of mid cap and small cap funds in the long run as the number of small cap companies that turn to become mid cap or large cap is minimal. Is there a reason for investors to still invest in small cap funds? What kind if investors can invest in the category?
We believe that the small and mid-cap category has the potential to outperform larger companies for the simple reason that their size and scale is lower. On that scale, it is slightly easier to grow their business at a rate higher than their large cap peers. With that thought process within the category, we are trying to build a portfolio of companies which we think are going to outperform due to their competitive advantage and hence has a better chance of moving up the market capitalisation range. That would solve half of the problem. The other half of the problem is where data suggests that the mortality rate among the small caps is higher. Hence elimination becomes extremely critical for generating alpha. By sticking to our investment philosophy, we are able to avoid many accidents.

I think over a period, as we identify potential long-term winners and eliminate losers, we should be able to meet the desired objective.

What is one thing in your not-to do list while managing these top performing schemes?
We like to stick to our core investment philosophy and not like to deviate from the discipline while taking investment decisions. This helps us in eliminating the losers and selecting winners.

What would you like to tell the investors about your schemes?
We believe we have the right inputs in terms of selecting companies which have stood the test of time, if one looks at the long-term performance of our schemes. While over the last two to three years, DSP Small Cap Fund might not have met the expectations of the investors, we believe that with a successful framework, the long-term outcome should be desirable as far as investors’ expectations are concerned. We advise investors to have patience, remain invested in our funds and look at the long-term picture.

The market is hovering around its highest levels. Any advice for investors?
Given the peculiar situation where the market is at a high point and most economic indicators are slowing, we would advise investors to remain cautious and keep the expectations low in terms of returns from equities in the short to medium term, say, one year. We would like to see a reversal in growth trends before we start becoming constructive about return expectations. Investment only with a view of at least three to four years is advocated at this point in time.

Do you believe mid cap and small cap stocks have become fairly valued? Most industry experts say this is the right time to get into these segments. What is your opinion?
I would partially agree because there are some pockets in mid-caps which are still in the expensive zone and at the other end there are pockets of opportunities which have opened up. This is relevant, especially when we try to look at it from the fact that the earnings growth cycle has not picked up as per our expectations. I would say that there are pockets of opportunities, but not in plenty. Hence, I would recommend investment in the category in a staggered fashion.

A few more schemes from the AMC- DSP Equity Opportunities Fund, DSP Equity Fund, DSP Tax Saver, DSP Focus Fund - have been among the top performers in their respective categories. But they do not figure in the recommendation list of many advisors. What would you like you to tell investors about these schemes?
You are correct. Investors, it seems, were bit cautious due to a few changes which DSP Investment Managers saw since last year in terms of buyout of Blackrock’s stake and a few senior level exits. We were not deterred by any of these changes as we were very confident about our processes and the team. We have hired new talent wherever required and have further fortified the team. Being disciplined about following our core philosophies has helped in the turnaround of most of our funds’ performance and investors are taking cognizance of the same.

I would like to tell our investors that for us honesty and integrity are the core pillars on which our foundation is built. As far as investments are concerned, we are trying to be as fundamental and as scientific as possible, which should help in delivering positive long-term outcomes.

Also Read

DHFL re-payment lifts NAVs at DSP mutual fund

DHFL repays entire dues to DSP Mutual Fund, schemes’ NAVs rise

Long-term investors, enter midcaps now, but be selective: Vinit Sambre, DSP Mutual Fund

DSP Mutual Fund launches DSP Quant Fund

Comments
Add Your Comments
Commenting feature is disabled in your country/region.

Other useful Links


Copyright © 2020 Bennett, Coleman & Co. Ltd. All rights reserved. For reprint rights: Times Syndication Service