Fund Focus : DSP Blackrock Opportunities Fund

New fund manager drives fund into top quartile

Rohit Singhania, Vice President & Fund Manager, DSP Blackrock

16th May 2016

In a nutshell

Rohit Singhania has been actively managing DSP Blackrock Opportunities Fund over the last 15 months - a period where he has managed to drive the fund into the top quartile of the diversified equity funds category.

Opportunities for Rohit is more about stocks rather than sectors, and he has unhesitatingly taken significant active bets in key stocks and sectors in his quest for alpha

Rohit, who has been tracking the metals space for over 14 years, is circumspect about the recent run up in commodity prices, which he believes is not in keeping with any demand pick-up, but more a function of liquidity.

What do percentiles and their colours signify?

Fund performance is typically measured against benchmark (alpha) and against competition. Performance versus competition is measured through percentile scores - ie, what percentage of funds in the same category did this fund beat in the particular period?

If a fund's rank in a year was 6/25 it means that it stood 6th among a total of 25 funds in that category, in that period. This means 5 funds did better than this fund. In percentile terms, it stood at the 80th percentile - which means 20% of funds did better than this fund, in that particular period. If, in the next year, its rank was 11/26, it means 10 other funds out of a universe of 26 did better than this fund - or 38% of funds did better than this one. Its percentile score is therefore 62% - which signifies it beat 62% of competition.

Most fund managers aim to be in the top quartile (75 percentile or higher) while second quartile is also an acceptable outcome (beating 50 to 75% of competition). What is generally not acceptable is to be in the 3rd or 4th quartiles (beating less than 50% of competition). Accordingly, we have given colour codes aligned with how fund houses see their own percentile scores. Green colour signifies top quartile (percentile score of 75 and above), yellow or amber signifies second quartile (percentile scores of 50 to 74) and red signifies 3rd and 4th quartile performance. A simple visual inspection of colour codes can thus give you an idea of how often this fund has been in the top half of the table and how often it slips to the bottom half. A great fund performance is one which has only greens and yellows and no reds - admittedly a tall ask!

WF: What does your attribution analysis suggest as the key sources of alpha in CY 2015? Was alpha a function of thematic calls or stock selection?

Rohit: I think it was more of stock selection, and to a large extent, that's a function of the mandate of this fund. Being an Opportunities Fund, we are always on the look out for interesting stock opportunities, more than looking out for major sectoral calls. There are times when macro variables justify a sector, but micro variables don't justify some of the heavyweights of the sector - and vice versa. So, it has to be stock specific. So for example, while we were bullish on the auto space throughout last year, alpha was driven by a high conviction bet in an auto major which has a significant overseas presence, as that was a big driver of value. We were underweight some of the key names within the auto sector, despite an overall positive view on the sector.

Take the reverse case. In volatile times - and we've had a lot of that in recent years - many fund managers tend to look for "places to hide" - which are typically defensives like IT, pharma and FMCG. But, as we have seen in the last couple of years, you have to be very very selective even in choosing these "hiding" places - as we have seen some big pharma names getting punished in the market after negative news flows, especially from the US.

WF: In terms of performance vs peers, it appears that in recent years, your fund outperforms others during challenging market conditions, but lags behind in big bullish phases. Is this a fair observation? To what will you attribute this phenomenon?

Rohit: I have been actively involved in managing this fund over the last 15 months, and so can share my perspectives about this period only. The fund has generated healthy performance during the last 15 months, and it will be my endeavor to maintain this performance.

We are active not only in scouting for opportunities on a bottom up basis, but we also constantly evaluate all our holdings to see whether there is a case to change any of the weights of our key holdings. We have a clear idea of what we think each stock should be worth and we don't hesitate to reduce weights in stocks where we see markets taking them beyond fair value. We've done that with some of our biggest holdings too, where we trimmed our positions when these stocks ran up too fast.

We try to cut out market noise that comes from incremental newsflow - about what's happening in China or what the Fed did or did not do and so on. We look closely at the fundamentals of the stocks we own and what we think is a fair value for them. That's what guides our portfolio decisions.

WF: How is the fund positioned in terms of market cap allocations? How have these moved over the last 12 months?

Rohit: The portfolio is tilted towards large caps. Large caps have been around 70% of the portfolio, and it's likely to stay this way. This is a sub 900 crore fund, and will hopefully grow well beyond that as well. Being opportunistic is also about being nimble, and to be nimble, you need to focus on liquidity of your stocks as well. To some extent, liquidity considerations play a part in maintaining the large cap bias at around 70% of the portfolio.

WF: Which are the sectors that you are more optimistic on right now and which are the ones that you are completely avoiding?

Rohit: If you look at the portfolio, you will see that we are underweight on telecom and on consumer staples. In consumer staples, we have concerns on valuations as well as growth prospects. We think margin pressures will make markets take a re-look at the premium valuations that are currently accorded to this sector. Telecom we are overall underweight, but we own one of the fast growing mobile businesses, where we see value.

We are overweight on auto and oil and gas. Oil and gas is a good example of being stock specific. We are underweight on some of the biggest names of the sector, but overweight in some of the smaller downstream players. IT is overall underweight, but we do have decent holdings in a couple of IT majors. So, its really more stock specific, as you can see.

WF: Globally, we seem to be basking in a risk-on phase, which is supporting asset prices across the world. Do you have any apprehensions on the global context? What are the key global issues that might cause this risk-on trade to switch off and how probable would these be?

Rohit: From what I can see in the commodities space - and I've been tracking metals for the last 14-15 years - the rebound in commodity prices that we are seeing now seems to be more a liquidity driven move rather than a pick-up in demand. So, one would be very watchful about this. In fact in our portfolio, we had sizeable positions in metal stocks, which we have significantly trimmed in recent weeks, in this rally.

Europe continues to be a piece that has not really been resolved, and when that can trigger risk-on going back to risk-off, nobody really knows. So yes, there are many imponderables - China, Europe, US rate hikes and so on. We have to remain watchful about them, but from a portfolio point of view, where we believe risk-on is getting ahead of fundamentals, we are actively managing such positions.

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