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WF: Your fund typically invests around 75% in the Indian consumption theme and around 25% feeds into your Asian consumption oriented fund. Can you tell us more about the India investment strategy?
Ankit: Mirae Asset Great Consumer Fund is one of the most unique funds, which provides exposure to the long term consumption theme in India and Asia. As you rightly pointed out 70-75% of the portfolio is invested in companies which will directly or indirectly be benefitted from consumption demand in India, while 25% will be invested in Mirae Asset Asia Great Consumer Equity Fund.
For the India portfolio (~75% of the portfolio) we follow the following investment strategy
The India portfolio will have concentrated portfolio of 30 to 40 stocks and has flexibility to invest across market cap or style. Since it is a consumption based fund, hence for the India portion the fund shall invest in companies where atleast 50% of profits/revenues are derived from domestic India businesses. We follow a fundamental, bottom-up approach that aims to identify growth companies which have high return ratios (ROE) and possess sustainable competitive advantage
This product provides investors, international exposure with India equity taxation benefits. The Mirae Asset Great Consumer Fund has completed more than 6 years of track record, and has generated 18% CAGR returns over this period, compared to 15% of the benchmark and 8% generated by S&P BSE Sensex. We are also trying to create a consistent dividend track record.
We believe Consumption is a long term theme in India and investors can invest in this fund with a 5-10 year perspective.
WF: Can you take us through the Asia fund that this products feeds into for 25% of its allocation - the fund strategy, sectoral composition, geographic spread and track record?
Ankit: Let me tell you more about Mirae Asset Asia Great Consumer Equity Fund. We invest between 20-30% of the funds in this fund. This fundis Luxembourg domiciled SICAV fund. The fund mainly invests in equities and equity-related securities of "Asian companies" which are expected to benefit from growing consumptionactivities of Asian region, excluding Japan."Asian companies" shall mean companies domiciled or exercising alarge portion of their economic activity in the Asia ex Japan region, orcompanies listed on the stock exchanges of these markets. Geographically, it has largest exposure to China followed by India, Korea, Indonesia. Taiwan and other countries. Its large sectoral composition is towards high growth Consumer Discretionary followed by IT (which includes e-commerce), Consumer staple companies and Healthcare. Typically sectors like e-commerce etc. are much evolved in those geographies and growing at a brisk pace, which complements India.The Mirae Asset Asia Great Consumer Equity Fund (SICAV Fund)has a 6 year track record and has generated, 47% absolute returns, compared to 28% of the benchmark (as on 30th June, 2017).
WF: The Indian consumption story is seen as a strong secular one but also regarded as the most expensive zone within the stock market. How do you navigate valuations in this context to pick stocks for your portfolio?
Ankit: Our investment philosophy is to invest in quality growth businesses at a reasonable value. Valuation is an integral aspect of investing and we avoid businesses which don't fit in our matrix of margin of safety. As such, characteristic of this fund is not to confine itself to invest in traditional consumer space, rather we have adopted an approach to invest in diversified set of sectors like auto, consumer durable, FMCG, media etc, which are going to benefit from increasing consumption in the country. While certain pockets are expensive, we believe there are enough opportunity to invest in growth companies at a reasonable price.
WF: Which segments within the Indian consumption story appear to offer value at current levels?
Ankit: We continue to remain positive on the consumption side of the economy as factors like lower interest rates, falling inflation, benefit of pay commission allowance etc. will accelerate growth. We are more positive on sectors like consumer discretionary, auto & auto ancillary, retail banking, and building material etc.
WF: Between staples and discretionary, where would you be relatively overweight now and why?
Ankit: We are relatively overweight on consumer discretionary in comparison to consumer staples because of high growth potential and relative valuation merit. Increasing per capita income will drive aspirational level and hence higher spend towards discretionary items.
WF: Between urban and rural consumption, where would you be relatively overweight now and why?
Ankit: We are presently relatively overweight on the urban consumption. This is because rural demand is yet to recover after back to back droughts in crop year 2015 and 2016. However, we believe with general thrust by the Government to improve rural income coupled with good back to back monsoon should augur rural demand in the near term.
WF: Given the secular nature of the Indian consumption story, if you were to take a 10 year view, which is the segment that you would be most excited to invest in today?
Ankit: Present Government is taking slew of measures like implementation of GST, housing for all, power for all, doubling farm income. All of this augurs well for increase in per capita income and will drive consumption. Particularly, measures like GST will help in benefitting organized players in a massive way as incrementally un-organized players cost will go up. We are very comfortable investing in such companies which will benefit from this trend in the longer run.
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Mirae Asset Great Consumer Fund is a highly focused play on the biggest theme in India and Asia - the burgeoning purchasing power of billions of Asians, with 75% focused on India and 25% feeding into an overseas fund that plays the Asian consumption theme. Between staples and discretionaries, it's the latter for Ankit and between urban and rural consumption, it's the former for him in terms of relative overweights. The one story he is most bullish on from a 10 year view within the Indian consumption story is the GST driven shift towards organised sector players.