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Click here to know more about percentiles and the colour codes
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: Y-o-Y performance in recent years has been very healthy. What are the key drivers of this consistent performance?
Vihang Naik: We have a 70:30 strategy for L&T Midcap Fund wherein 70% of the fund is invested in scalable moats at a reasonable price. 30% of the assets are invested in deep value stocks. In 2016, value largely outperformed growth and our deep value stocks picks helped us. Our focus on quality and value has resulted in consistent performance. We have also been lucky that search for value ideas have resulted in deep value stocks getting re-rated earlier than we expected.
WF: Market concerns are rising on expensive valuations in the mid and small caps space. Some suggest that we are now in bubble zone in these segments. What is your take on valuations and prospects from here on to make money in midcaps?
Vihang Naik: While there could be pockets of over valuation in a few sectors, we do not think the whole midcap space is in a bubble zone. We do not see euphoria led irrationality at this point. With the crack down on parallel economy, market share shift from unorganized to organized sector is a mega trend in India. Many midcap companies will be beneficiaries of this trend. This could result in superior earnings growth in midcap companies over the next five years. Market is factoring this change and discounting superior earnings growth. Hence valuations on current earnings could optically look expensive.
WF: In what ways have you restructured your portfolio in recent months to safeguard it from overvaluation concerns?
Vihang Naik: We continuously monitor our portfolio for irrationality in valuations and trim stocks where valuations run ahead of fundamentals. We are moving into sectors & stocks with relative under ownership & under valuation. We believe that timing the market is going to be tough. Quality franchises are bound to do well in the long term irrespective of broader markets.
WF: GDP growth numbers show a picture of resilience and growth while corporate earnings numbers don't quite reflect the same. Why is there this gap?
Vihang Naik: This difference is due to technical reasons. Due to the change in GDP series a few years ago, the methodology of computation has changed, in line with global standards. This is the reason why GDP growth appears to be higher than corporate earnings growth.
WF: How do you see the prospects for equity markets over the next 12-18 months? What will be the key drivers and what do you see as significant risks?
Vihang Naik: We remain sanguine on equity markets in India. In terms of market opportunity to market cap, India is in a sweet spot. I believe government reforms over last few years will result in reduction in cost of factors of production. Land, labour and capital will be cheaper over the next 10 years than they have been in the last 10 years. This could result in higher profits for the last factor which is entrepreneurship. This trend will be instrumental in reviving earnings growth in India. From a long term perspective the best returns from equity markets lie ahead of us. Risks could rise from global factors like interest rates, flows etc.
Details of the Scheme and Type of scheme
An open-ended equity scheme
Investment Objective: To generate capital appreciation by investing primarily in midcap stocks. The scheme will invest primarily in companies whose market capitalization falls between the highest and the lowest constituent of the Nifty Free Float Midcap 100.
This product is suitable for investors who are seeking*:
o Long term capital appreciation
o Investment primarily in midcap equity and equity-related securities,
*Investors should consult their financial advisers if in doubt about whether the product is suitable for them.
Disclaimer:"This document is for general information only and does not have regard to specific investment objectives, financial situation and the particular needs of any specific person who may receive this information. This document provides general information on performance; financial planning and/or comparisons made are only for illustration purposes. The data/information used/disclosed in this document is only for information purposes and not guaranteeing / indicating any returns. This material provides general information and comparisons made (if any) are only for illustration purposes. Investments in mutual funds and secondary markets inherently involve risks and recipient should consult their legal, tax and financial advisors before investing. Recipient of this document should understand that statements made herein regarding future prospects may not be realized. Recipient should also understand that any reference to the indices/ sectors/ securities/ schemes etc. in the document is only for illustration purpose and should not be considered as recommendation(s) from the author or L&T Investment Management Limited, the asset management company of L&T Mutual Fund or any of its associates. Recipient of this information should understand that statements made herein regarding future prospects may not be realized or achieved. Neither this document nor the units of L&T Mutual Fund have been registered in any jurisdiction except India. The distribution of this document in certain jurisdictions may be restricted or totally prohibited and accordingly, persons who come into possession of this document are required to inform themselves about, and to observe, any such restrictions".
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
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Fund Focus: L&T Midcap Fund
