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Monday, April 29, 2019

Mirae Asset Focused Fund

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Mirae Asset Focused Fund (MAFF) is a new fund from the stable of Mirae Asset Mutual Fund. It is an open-ended diversified equity scheme which will follow a focused approach of investing in equity and equity related instruments.

As per SEBI regulations, a focused fund is not allowed to hold more than 30 stocks and invests a minimum of 65% of its assets in equity and equity related instruments. MAFF will allocate its assets as per the given prescribed limits in equities and will also allocate some portion (up to 35% of its total assets) to debt and money market instruments from an asset allocation standpoint and to mitigate the risk.

In an endeavour to capture potential gains over the long term with a focused approach, MAFF will diversify its equity portfolio by being sector and market cap agnostic. Nonetheless being a focused fund it would entail very high-risk.

Hence, MAFF is suitable for investors who are willing to take the high risk and have an investment time horizon of at least 5-7 years while they seek to appreciate their capital.

Table 1: NFO Details

Type An open-ended equity scheme investing in a maximum of 30 stocks intending to focus in large cap, mid cap and small cap category Category Diversified Equity -- Focused Fund
Investment Objective To generate long term capital appreciation/income by investing in equity & equity related instruments of up to 30 companies.

There is no assurance that the investment objective of the Scheme will be realized.
Min. Investment Rs 5,000 and in multiples of Re 1 thereafter Face Value Rs 10 per unit
Plans • Regular*

• Direct

*Default option
Options • Growth*

• Dividend (Pay-out and Reinvestment*)

*Default option
Entry Load Nil Exit Load If redeemed;

•  Within 1 year (365 days) from the date of allotment: 1%

•  After 1 year (365 days) from the date of allotment: Nil
Fund Manager Mr Gaurav Misra Benchmark Index Nifty 200 Index (TRI)
Issue Opens: 23/04/2019 Issue Closes: 07/05/2019
(Source: Scheme Information Document)


How will the scheme allocate its assets?

Under normal circumstances, the scheme's asset allocation will be as under:

Table 2: MAFF's Asset Allocation

Instruments Indicative Allocation (% of Total Assets) Risk Profile
Maximum Minimum
Indian equities and equity-related securities$* 100 65 High
Money market instruments/debt securities, Instruments and/or units of debt/liquid schemes of domestic Mutual Funds 35 0 Low to Medium
$ subject to overall limit of 30 stocks
*Equity and Equity related instruments include convertible debentures, equity warrants, convertible preference shares, equity derivatives etc.
(Source: Scheme Information Document)


What will be the Investment Strategy?

The Scheme will primarily invest in equity and equity-related securities.

The fund manager will follow a focused approach on the investments. The investments will be limited to a maximum of 30 stocks. The fund has the flexibility to invest across market capitalization in large cap, mid cap and small cap category.

The focus would be to build a portfolio of strong growth companies, reflecting our most attractive investment ideas at all points of time.

The universe of stocks will comprise majorly of companies having robust business models, enjoying sustainable competitive advantages as compared to their competitors and have high return ratios.

The Fund Manager will create a robust portfolio to avoid concentration risk and liquidity risk. The Fund Managers will monitor the trading volumes in a particular stock before investment to avoid liquidity risk.

Risk Mitigation measures arising from investments in equity/equity related instruments

  • Being a Focused Fund, the scheme has a security concentration risk, however, the scheme will endeavour to have a diversified equity portfolio comprising stocks across various sectors of the economy to reduce the sector-specific risks.

  • The scheme targets to maintain exposure across different market cap segments - i.e. large, mid-cap and small cap. This shall aid in managing volatility and improve liquidity.

  • Any investments in debt securities would be undertaken after assessing the associated credit risk, interest rate risk and liquidity risk.

Besides, the Scheme will also invest in debt securities and money market instruments.

  • The credit quality of the portfolio will be maintained and monitored using in-house research capabilities as well as inputs from external sources such as independent credit rating agencies.

  • The investment team will primarily use a top-down approach for taking interest rate view, sector allocation along with a bottom-up approach for security/instrument selection.

  • The bottom-up approach will assess the quality of security/instrument (including the financial health of the issuer) as well as the liquidity of the security.

  • Investments in debt instruments carry various risks such as interest rate risk, reinvestment risk, credit risk and liquidity risk etc. Whilst such risks cannot be eliminated, they may be minimized through diversification.

Who will manage the Mirae Asset Focused Fund?

Mirae Asset Focused Fund will be managed by Mr Gaurav Misra.

Mr Gaurav Misra has an Honors degree (BA. Hons) in economics from St Stephen's College and an MBA from IIM Lucknow to his credit. Prior to joining Mirae Asset Mutual Fund, he was associated with ASK Investment Managers Ltd for over a decade as a Senior Portfolio Manager

Currently, at the fund house, he co-manages Mirae Asset India Equity Fund.

The outlook of Mirae Asset Focused Fund:

The fate of MAFF hinges on the performance of the stocks held in the portfolio. Although, the fund manager will follow a robust investment style that includes the following:

- A focused approach

- Flexibility to invest across market capitalisation and sectors

- An aim to build and manage a portfolio comprising of strong growth companies based on the investment process

- Building a robust portfolio that will mitigate risk

Image: MAFF's Investment Style


(Source: Mirae Asset Focused Fund One-Pager)


But considering the present volatility due to the ongoing Lok Sabha elections with investors speculating the election's outcome. Constructing the portfolio would be a challenging task for the fund manager, and if the Indian equity markets hit more turbulent waters ahead it may inflict high-risk

At present market when the S&P BSE Sensex is already near its 52-week high. Earnings will have to justify the valuations. The trail P/E of the S&P BSE Sensex and the large-cap index is currently at 28x and 26x. Even the P/E of the S&P BSE MidCap index has scaled to around 30x. Calling any of these levels as 'cheap' would be an imprudent judgement. The S&P BSE SmallCap Index is trading at a negative P/E of around 102x, but that doesn't mean valuation-wise small-caps look attractive. What it means is, many constituents of the BSE SmallCap index are making losses thereby contributing negatively to its growth.

Even though the fund has the option to invest in equity derivatives instruments for hedging or balancing the portfolio to optimize returns and mitigate the risk involved.

While the portfolio construction will be in a diversified manner with a sector agnostic and across market cap, allocating a dominant portion to large caps can offer stability to the investment portfolio. Investing in large blue-chip companies with strong balance sheets and proven track records in the portfolio could help ride the wave of short-term volatility to a certain extent. In present conditions, having a concentrated portfolio of small and mid-caps will prove to be more harmful. Hence, how the fund manager constructs the portfolio is crucial and remains to be seen.





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