What happens when a fund manager who has built a fund since its inception decides to leave? Gautam Sinha Roy, the fund manager of Motilal Oswal Multicap 35 Fund, the third largest fund in its category, quit the AMC last month and that has made the investors of the fund jittery.
Roy had been managing the fund since its inception in 2014. The fund quickly gained prominence, after beating the competition in 2015, 2016 and 2017. From May 17, 2019, Akash Singhania has been made in charge of the over Rs 13,000 crore scheme.
Using the BUY RIGHT : SIT TIGHT mantra (buying quality companies and riding their growth cycle), the fund invests in not more than 35 stocks that are emerging and enduring wealth creators. It tries high conviction ideas with improved risk-adjusted return characteristics.
Let us take a quick recap of the fund and its journey under Roy. Since the Motilal Oswal Multicap 35 Fund (formerly Motilal Oswal MOSt Focused Multicap 35 Fund) was launched in April 2014, we have taken a look at its annual returns for full years of 2015, 2016, 2017 and 2018.
2015 – The Motilal Oswal Multicap 35 Fund was the best performing multicap fund. It notched up 14.6% return when biggies like Kotak Standard Multicap Fund (the erstwhile Kotak Select Focus Fund) gave 3%.
2016 – The Motilal Oswal Multicap 35 Fund was not the best performer but still it was one of the top 10. The scheme delivered 8.45% gain at a time when many multi cap funds gave low single-digit returns.
2017 – This was a massive year, with Motilal Oswal Multicap 35 Fund generating over 43%. Even though the fund was quite large by then, it managed to perform. Many of the top performers of 2016 were in the worst fund list.
2018 – This was the first year of negative returns for the fund. Motilal Oswal Multicap 35 Fund lost about 8% in terms of NAV. The worst funds that year lost over 10%. The best performers that year included Axis Multicap Fund and UTI Equity Fund; both notched decent single digit positive returns.
The Manpasand Beverages issue
Around May 2018, fruit juice maker Manpasand Beverages shares faced a rout. The reason? Its auditor had resigned ahead of board meeting for approving financial results. Allegations of irregularities in accounts were afloat. Motilal Oswal AMC was exposed to the stock.
The stock has fallen nearly 60 per cent since May 24. Manpasand chairman and MD Dhirendra Singh has said he is willing to step down from the day-to-day operations of the company over an alleged GST fraud and arrests of its top executives.
When the issue first came to light, along with Motilal Oswal AMC, fund-houses like BNP Paribas, Baroda Pioneer, ICICI Prudential, Kotak, SBI and BOI AXA were seen holding Manpasand shares
Life after Roy
It is no doubt that Roy and his astute management helped the multi cap fund grow big and popular. But, is there a future beyond him? Is the Motilal Oswal Multicap 35 Fund strategy such that only Roy can handle it?
We spoke to Aashish P Somaiyaa, MD & CEO, Motilal Oswal AMC.
“Gautam was managing the fund since inception and since his decision to move on we have put Akash Singhania in charge of Multicap 35. Akash has long experience of fund management and he has been with Motilal Oswal AMC for 2 years managing midcap 30. Last year has been very difficult for midcap funds and in that phase he dramatically improved the fund performance and ranking in league tables,” the CEO said.
Fund managers are very important in the process of delivering performance but at the same time, Motilal Oswal AMC doesn’t have a loosely defined philosophy.
“We have a tightly defined investing process and philosophy of buying quality and growth-oriented companies and holding on to them. Considering this well-documented philosophy with outer bounds well very defined and close involvement of our founders we believe that we will be able to provide continuity and consistency to our investors. Our belief is well demonstrated by the fact that our proprietary investments in Multicap 35 and midcap 30 are approximate to the tune of Rs 1,600 crore and Rs 500 crore respectively,” said Somaiyaa.
RupeeIQ take – Akash Singhania, the new fund manager, will also have the access to Motilal Oswal and Raamdeo Agrawal in terms of guidance. Many large funds have had to face fund manager exit. The true test of fund philosophy is when the fund manager changes. While there are some who often criticise Motilal Oswal AMC as having a close to momentum style investing, we do not subscribe to this harsh view.
In 2019, the fund has so far delivered 6% returns, largely in-line with the category. Investors should always invest based on a fund’s long-term track record and practices. The fund manager is important, but a fund manager is one of the individuals. From that perspective, there is no real cause of concern. The fund house’s investment philosophy and stock picking acumen, backed by veterans in management, remains intact.
Disclaimer: The article is only for informational purposes. Investors are requested to consult their financial, tax and other advisors before taking any investment decision.