The fund portfolio, to be managed by CIO equity Taher Badshah, will have both growth and value stocks and benchmarked against S&P BSE 500 TRI
Invesco Mutual Fund has announced the launch of its new fund, Invesco India Focused 20 Equity Fund. This will be an open-ended equity scheme investing in maximum 20 stocks across market capitalisation (i.e. multicap). The fund will adopt a high conviction approach to investing with meaningful allocation to each stock idea yet maintaining a balance between conviction and diversification, says the fund-house. The New Fund Offer (NFO) will be open for subscription from September 9, 2020 and will close on September 23, 2020. In this article, we will decode the new product, look at the focused fund category, and much more. Read on.
Buying a focused fund is usually like buying the best stock ideas through a portfolio approach. Think of it like the IPL or any cricket match format where the best players irrespective of their country etc. can be selected for a team.
Over the years, the focus fund sub-category has become quite a large one with over 22 schemes. This space is usually dominated by multicap funds since fund managers want to take bets across the cap-curve. Invesco Focused 20 Equity Fund will be the 23rd focused MF product. The biggest one is the Axis Focused 25 Fund with over Rs 11,000 crore in AUM.
Focus pays. If you look at historical market performance, only a handful of stocks do well compared to hundreds of others. Focused funds try to buy potentially best ideas and hope to enjoy returns from a small portfolio, instead of a mind-numbing huge portfolio with 70-80 stocks. Naturally, stock selection is key if your fund is going to take slightly concentrated exposures. There is often a wide divergence in returns between top and bottom performing stock within the same sector.
While diversification is good, adding a large number of stocks in the portfolio does not always reduce risk.
Currently, a large portion of the Invesco India Focused 20 Equity Fund portfolio will be invested in large-cap stocks (approx. between 50% – 70%), exposure to midcap stocks will be in the range of 30% to 50%, while exposure to small-cap stocks will be in the range 0 – 20% of the portfolio. This is based on current views and may change from time to time.
Further, the portfolio will comprise of both growth and value stocks, which is a blended approach. The portfolio will not have more than 20 stocks. Invesco at the moment actively covers 297 firms in-house.
The fund portfolio aims to generate alpha from a concentrated portfolio, albeit at a higher risk.
Stock selection will be guided by Invesco’s investment philosophy and proprietary stock categorization framework. The fund-house hopes the process-driven approach will assist the fund in filtering the best investment ideas and contain the downside risk.
The fund will adopt a fully invested approach (~95% invested). So, no chance of cash calls or drag from a high cash position. Conversely, the fund is unlikely to get any benefit during falling markets since it endeavors to remain fully invested in stocks.
Minimum investment amount – During the NFO it is Rs 1000. For SIP investments, the minimum application amount is Rs 500.
Plans / Options – Growth Option; Dividend Payout; Dividend Reinvestment (if dividend payable under dividend option is equal or less than Rs. 100/- then the dividend would be compulsorily reinvested).
Fund manager – Taher Badshah.
Benchmark – S&P BSE 500 TRI.
Exit load – No exit load will be charged, if upto 10% of the units are redeemed/ switched out within 1 year from the date of allotment. If more than 10% of the units are redeemed / switched out within 1 year from the date of allotment , exit load of 1% will be charged. No exit load will be charged for units redeemed / switched after 1 year from the date of allotment.
Taxation – Equity
Speaking at the launch, Saurabh Nanavati, Chief Executive Officer, Invesco Mutual Fund said “If you analyze the data you will find a handful of stocks have contributed to most of the returns at different points in time. Further, there is also a huge divergence in returns across and within the sectors which lays emphasis on the right stock selection. Our investment expertise and research prowess enable us to identify the right investment ideas with the potential of generating wealth and helping investors get closer to their financial objectives.”
Focused funds are for a particular set of investors. This is ideal if you want your equity fund to take the risk of targeting high conviction ideas in a concentrated manner. We agree with Invesco MF that with the current economic disruption and uncertainty looming high over equity markets, extraordinary vigil and meticulous approach is the need of the hour to build a sound portfolio.
We also took a look at focused fund returns over the last 3, 5, and 10 years. Most of the time the category does well compared to the multicap space. This is also due to slightly higher risk taken. Do note that focused funds ideally should not be the core of your investment portfolio. They should be an accessory since they take pin-pointed exposure.
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