When the investment head at a mutual fund house quits, investors are bound to worry. L&T Mutual Fund’s Chief Investment Officer (CIO) S N Lahiri has resigned, and it’s likely investors are worried about how the fund is going to do in future. After all, Lahiri was the most experienced fund manager in the fund house and he also directly managed eight funds. Some of the schemes are among the best in the category. So, should investors jump ship following this development? Or, should they hang around for a while and see how things go? RupeeIQ tries to help you make up your mind.
Who is S N Lahiri?
S N Lahiri with 26 years of experience was the most experienced hand in L&T MF. Under his watchful eyes, the fund-house widened its ‘growth at reasonable valuation’ investment philosophy. Lahiri, well-known for his midcap stock exploits, is known for spotting stocks where growth is better than that of the market and the peer group. Lahiri came to L&T MF from Canara Robeco Mutual Fund in 2012. In the same year, L&T had acquired Fidelity Mutual Fund’s assets in India too..
Over the years, funds managed by Lahiri performed well and grew in size. The recent portfolio of funds under Lahiri shows one consistent thing: diversification in terms of stock holdings. It appears that Lahiri is not a fan of the concentrated investing approach, which has helped many peers rack up returns in a market where only a portion of stocks is finding takers.
As on October 31, 2019, he managed the following funds:
* L&T Equity Fund – No bias, go-anywhere strategy – Rs 2,720 crore AUM – 62 stocks in the portfolio
* L&T Large and Midcap Fund – Invest in a mix of large and midcap stocks with portfolio tilt towards midcap – Rs 1,381 crore – 47 stocks in the portfolio
* L&T Tax Advantage Fund – Focusses on companies with strong balance sheet – Rs 3,418 crore – 63 stocks in the portfolio
* L&T Midcap Fund (co manager) – Bottom-up with focus on midcap stocks – Rs 5,831 crore – 82 stocks in portfolio
* L&T Emerging Businesses Fund – Focus on investing in emerging businesses – Rs 6,112 crore – 84 stocks in the portfolio
* L&T Infrastructure Fund – Stocks related to, or benefiting from growth in the infrastructure sector – Rs 1,786 crore – 52 stocks in the portfolio
* L&T Hybrid Equity Fund (equity component) – Rs 8,241 crore
* L&T Balanced Advantage Fund – Rs 645 crore
Put together, these eight funds account for over Rs 30,000 crore of L&T MF investor assets. Take a look at the returns as of October 2019 end.
Lahiri leaves, now what
Every year fund managers quit fund houses. Even the best of them will quit and chase something else. S N Lahiri of L&T MF is no exception. Recently, Anand Shah, who headed investments at BNP Paribas MF also left. UTI MF lost Lalit Nambiar. PVK Mohan quit Principal MF. Srinivas Rao Ravuri quit HDFC MF. Krishna Sanghavi has quit Canara Robeco MF.
When a veteran/star fund manager quits, many think this is a signal that you should also exit funds. When a fund manager is associated with a fund-house for long, a few things happen:
1. Long-stints in a fund house influence the overall investment approach of the fund house. In the case of L&T MF, Lahiri’s imprint would be there and a process-driven approach might not completely hide it. Lahiri was not just a senior investment team member; he was the CIO. So, that imprint will be deeper. Even though fund-houses talk about the investment process and try to downplay the ‘human element’ in the decision-making process, investing remains a deeply personal exercise. Not two fund managers will approach a stock in exactly the same way.
2. When a fund manager quits, a new guy takes over. In the case of L&T MF, Venugopal Manghat would be taking over the management of many funds after Lahiri’s departure. Every fund manager has his/her own way of building a portfolio. Two people in the same company may have very different investment strategies. A good way to spot this is to look at the fund’s portfolio turnover ratio. If there is a sharp difference in strategy, the new fund manager will start offloading part or whole of the portfolio slowly. This will show on the portfolio turnover ratio. In about 6-9 months, a portfolio can usually be redesigned.
What L&T MF investors should do
* Multicap and tax-saving funds have mandates that are loosely defined, allowing the fund manager the freedom to shift around the style or market cap in the portfolio. Performance in such schemes is mostly to do with the fund manager. Hence a change at the helm, can impact performance. Give six months time to monitor the performance of these funds. We found many funds managed by Lahiri like multicap fund, L&T Equity, is ranked consistently in the lower or the mid-range of peers over 1 year, 3 year and 5 year time periods. The same goes for tax-saving fund L&T Tax Advantage and L&T Large and Midcap Fund. So, in essence, investors have little to lose with Lahiri’s departure given that fund rankings are already quite low.
* There are three funds where the individual scheme has remained in top 5/10 in the three year and five year time periods. These are L&T Infrastructure Fund, L&T Emerging Businesses Fund and L&T Midcap Fund. These clearly show that Lahiri steered the funds in a great manner. With Lahiri now out of the picture, give the new fund manager enough time so that we can see if the new manager is doing his bit to maintain and uplift the performance of the fund. Exit the funds only if there is a significant downfall in the fund’s performance.
Disclaimer: Views expressed here in this article are for general information and reading purposes only. They do not constitute any guidelines or recommendations on any course of action to be followed by the reader. The views are not meant to serve as a professional guide/investment advice / intended to be an offer or solicitation for the purchase or sale of any mutual fund.