Should A Fund Manager's Exit Guide Your Investment Decisions?
Jul 01, 2015

Author: PersonalFN Content & Research Team

Impact Impact Indicator

As you may be aware, Mr Kenneth Andrade, IDFC Mutual Fund's star fund manager recently put in his papers. He has decided to move on.

Given the appealing performance delivered by mutual fund schemes managed by him thus far, the exit of Mr Andrade has left many investors jittery. This is because, they perceive that absence of Mr Andrade may drag the performance of mutual fund schemes so far managed him. Wealth managers too, in such a scenario are hesitant to recommend schemes which are so far managed by Mr Andrade.
 

Performance of equity funds managed by Mr Andrade
Scheme Name 6-Mth (%) 1-Yr (%) 2-Yr (%) 3-Yr (%) 5-Yr (%) SD (Annualised) (%) Sharpe Ratio
IDFC Premier Equity Fund-Reg(G) 8.1 30.3 39.8 30.2 19.3 4.37 0.40
IDFC Equity Fund-Reg(G) 2.6 12.0 19.1 17.9 10.1 4.11 0.21
IDFC Equity Opportunity-1-Reg(D) 17.6 47.2 61.8 - - 5.28 0.62
S&P BSE 500 3.4 13.2 23.5 18.7 9.0 4.43 0.21
CNX Nifty Index 2.2 11.6 19.8 17.7 9.5 4.22 0.20
(Data as on June 26, 2015)
Returns for up to a year are expressed on an absolute basis, while those over a year are compounded annualised.
Standard Deviation and Sharpe ratio is calculated over a 3-Yr period. Risk-free rate is assumed to be 7.38%
(Source: ACE MF, PersonalFN Research)

Well, from the table above it is evident that undoubtedly there are reasons to worry about the exit of Mr Andrade, as the schemes managed by him have clocked appealing returns thus far, especially IDFC Premier Equity Fund which has sailed well across market phases of bulls and bears, managed the risk efficiently and has held an quality portfolio mainly skewed towards stocks in the mid cap domain.
 

So, should the star fund manager's exit, leave you in a heave?
Well, very few investors dispute the importance of a fund manager when it comes to investing in a mutual fund scheme. They hinge the performance of a respective scheme to the fund manager. Many of you as investors may have experienced your mutual fund distributor / agent / relationship manager trying to persuade you to invest in a mutual fund schemes, merely because the respective mutual fund scheme is managed by a star fund manager. The punch line you must have heard is - "Sir, invest in XYZ equity mutual fund. It is managed by "Mr ABC" - a star fund manager, and thus is bound to give solid returns."

But the big question is, whether that's a prudent way to invest and should there be so much emphasis on individualistic fund management.

Well, in our view instead of relying heavily on an individual's fund management trait, it is vital that you give due weightage to the investment processes and systems followed by the fund house. This will help you reduce risk as the investments made (for the portfolio) are process driven, whereby the investment mandates are followed by the fund house, and the fund manager's role is to function within the parameters defined by the fund house.

To assess whether a fund house follows sounds processes and systems, you need to:
 

  • Check whether a fund house has a dedicated research team backing its investment decision or stock picking is done based on whims and fancies of the fund manager;
  • Delve a little deeper in understanding the fund house's investment philosophy;
  • Be wary of fund houses which act as asset gathers in their race to garner more Assets Under Management (AUM) rather than being prudent asset managers; and
  • Weigh the investor service and transparency, which is also vital for you as an investor
     

Remember, your fund manager has no magic wand. And even if he does, over-dependency would not be the right approach. It should be noted that we are not trying to undermine the fund manager's importance. Even in a fund house which is process and team-driven, the fund managers have an important role to play. However, the key lies in striking a balance between the two i.e. the fund house and the fund manager, and ensuring that the fund manager doesn't take precedence over the fund house.

In case of IDFC Mutual Fund, the fund house follows strong investment processes and systems. So you may not necessarily worry about your investments in the schemes managed by Mr Andrade. The fund house has announced that Ms Punam Sharma would be successor for Mr Andrade, who would continue to be with the fund house and manage respective schemes (for the next 2 ½ months) until he serves the notice period.

Ms Punam Sharma, is an Associate Director - Fund Management at IDFC Mutual Fund and has a vast experience of over 12 years in fund management and research. She's been with IDFC Mutual Fund since September 2001 and is responsible for research on companies across market capitalisations and sectors. At present at IDFC Mutual Fund she manages: IDFC Dynamic Equity Fund, IDFC Equity Opportunities Fund, IDFC Nifty Fund, IDFC Asset Allocation Fund and IDFC Monthly Income Plan. Prior to IDFC Mutual Fund, Ms Sharma was associated with Kotak Mutual Fund where she was responsible for setting up the research desk, involved in product planning and development. Ms Sharma holds a MBA (Finance) and is a Bachelor of Science (B.Sc.).

As a strategy to follow at present, perhaps you may put the funds managed by Mr Andrade on watch list for the next 6 months and monitor the performance closely.

DISCLOSURE AS PER SECURITIES AND EXCHANGE BOARD OF INDIA (RESEARCH ANALYSTS) REGULATIONS, 2014

About the Company including business activity

Quantum Information Services Private Limited (QIS) was incorporated on December 19, 1989.

QIS was promoted by Mr. Ajit Dayal with an objective of providing value-based information / views on news related to equity markets, the economy in general, sector analysis, budget review and various personal products and investments options available to the Public. It was the first company to start equity research on an institutional level.

PersonalFN' is a service brand of QIS and was started in the year 1999. In 1999, the Company registered the Domain name www.personalfn.com for providing information on mutual funds and personal financial planning, financial markets in general, etc and services related to financial planning and research in various financial instruments including mutual funds, insurance and fixed income products to customers. It offers asset allocation and researched investment recommendations through its financial planning services.

Disciplinary history

There are no outstanding litigations against the Company, it subsidiaries and its Directors.

For the terms and condition for research report click here.

Details of associates

  1. Money Simplified Services Limited;
  2. PersonalFN Insurance Services India Limited ;
  3. Equitymaster Agora Research Private Limited;
  4. Common Sense Living Private Limited;
  5. Quantum Advisors Private Limited;
  6. Quantum Asset Management Company Private Limited;
  7. HelpYourNGO Private Limited;
  8. HelpYourNGO Foundation;
  9. QIEF Management LLC, Mauritius
  10. Natural Streets for Performing Arts Foundation;
  11. Rahul Goel;
  12. Ajit Dayal;
  13. I V Subramaniam.

Disclosure with regard to ownership and material conflicts of interest
 

  1. Neither QIS, it's Associates, Research Analyst or his/her relative have any financial interest in the subject Company , except QIS receives fees for providing research to Quantum Equity Fund of Fund (QEFoF) which is Fund of Fund scheme managed by QMF.
  2. Neither QIS, it's Associates, Research Analyst or his/her relative have actual/beneficial ownership of one per cent or more securities of the subject Company, at the end of the month immediately preceding the date of publication of the research report.
  3. Neither QIS, it's Associates, Research Analyst or his/her relative has any other material conflict of interest at the time of publication of the research report except that QIS (PersonalFN) is, as per SEBI (Mutual Funds) Regulations 1996, an associate / group Company of Quantum Asset Management Company Private Limited and Trustees and Sponsor of Quantum Mutual Fund (QMF) and to that extent there may be conflict of interest while recommending any schemes of QMF. However any such recommendation or reference made is based on the standard evaluation and selection process, which applies uniformly for all Mutual Fund Schemes. The payment of commission (upfront /annualized & trail), if any, for any Schemes by QMF to QIS (PersonalFN) is also at arm's length and as per prevailing market practices
     

Disclosure with regard to receipt of Compensation

  1. Neither QIS nor it's Associates have any compensation from the subject Company in the past twelve months.
  2. Neither QIS nor it's Associates have managed or co-managed public offering of securities for the subject Company in the past twelve months.
  3. Neither QIS nor it's Associates have received any compensation for investment banking or merchant banking or brokerage services from the subject Company in the past twelve months.
  4. Neither QIS nor it's Associates have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past twelve months.
  5. Neither QIS nor it's Associates have received any compensation or other benefits from the subject Company or third party in connection with the research report
     

General disclosure

  1. The Research Analyst has not served as an officer, director or employee of the subject Company.
  2. QIS or the Research Analyst has not been engaged in market making activity for the subject Company.
     

Subject Company means Mutual Fund Schemes

Quantum Information Services Pvt. Ltd. 101, Raheja Chambers, 213, Nariman Point, Mumbai - 400021. Tel: +91 22 6136 1200
Website : www.personalfn.com CIN: U65990MH1989PTC054667



Add Comments