Mirae Asset Focused Fund: Will this make a difference?

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Mirae Asset Focused Fund will invest in 30 stocks across all market caps. The NFO opened on April 23 and will remain open until 7th May and then re-open for continuous purchase on 15th May. We discuss if this will make a difference in the already crowded focused/multicap space.

Many feel that this fund launch is the reason behind Mirae India Equity Fund becoming Mirae Large Cap Fund. All AMCs are asset gatherers and they need new products from time to time for AUM and profit, hoping that investor clutter up their portfolios on a fear of missing out. For this a juicy inviting presentation on “what makes this fund special is necessary”

I find the promotional material for Mirae Asset Focused Fund on their site, rather dull and insipid. This the product tag line or description:

An open-ended equity scheme investing in a maximum of 30 stocks intending to focus in large cap, mid cap and small cap category (i.e., Multi-cap)

Hang on. “focus in large cap, mid cap and small cap category”? That is like saying I will focus on everything! “Focus” here refers to a limited of stocks does it not? That is Sebi’s definition. That is a bad first impression.
Mirae Asset Focused Fund: Will this make a difference?
Image courtesy: Mirae Asset. Usage: “Fair use”

The investment strategy of Mirae Asset Focused Fund

Aside from investing in 30 stocks across market cap, the fund wants to build a portfolio of strong growth companies managing concentration risk and liquidity risk in various ways.

It can hold up to 35% in bonds so it can act as an aggressive hybrid fund (possibly to reduce the risk associated with the concentrated stock portfolio) if it wanted to.  Out of the full portfolio, a maximum of half can be in derivatives (arbitrage opportunities) – but this is more of freedom on paper and rarely implemented in full by many funds.

The scheme will invest in companies with robust business models with sustainable competitive advantages and have high return ratios. Well, that is what they all say.

In addition to using bonds and derivatives to control risk, the Mirae Asset Focused Fund will reduce concentration risk (the biggest risk as well reward factor in focused funds) by monitoring stock trading volumes (to access liquidity), ensure proper diversification across sectors and market cap.

The fund has set a benchmark of Nifty 200 TRI. This is not too different from Nifty 50 due to the market cap weighting of the index. So it should not be much of a challenge for the fund manager to beat this (in terms of returns. Risk remains to be seen)

List of Focused Funds (as on April 2019)

There are currently 17 focused funds and Mirae Asset Focused Fund would be the 18th. If we ask, what does this NFO have that the other 17 do not? The answer is not clear, at least to me, from the material presently available on their website. Distributors may have a flashier file with instructions to sell hard (the fund has to collect at least 10 Crores or close. Of course, they would easily do a lot more than this – most of it regular plan aum)

This listing in terms of decreasing AUM. Notice that it is not too much in the focused space.  Sudden AUM growth will be a problem but Mirae could do what they did to Mirae Emerging Bluechip Fund (when this was mid capish, lump sum investment were suspended in Oct 2016 when AUM was only ~ 3100 Crores and not opened yet!)

FundCategoryNet Assets (Cr)
Franklin India Focused Equity FundEQ-MLC8207.75
Axis Focused 25 FundEQ-MLC7189.83
Reliance Focused Equity FundEQ-MLC4465.54
Aditya Birla Sun Life Focused Equity FundEQ-LC4268.37
SBI Focused Equity FundEQ-MLC4033.39
DSP Focus FundEQ-MLC2178.91
IDFC Focused Equity FundEQ-MLC1620.62
Motilal Oswal Focused 25 FundEQ-LC1105.82
Sundaram Select Focus FundEQ-LC966.09
ICICI Prudential Focused Equity FundEQ-MLC664.19
L&T Focused Equity FundEQ-MLC568.18
HDFC Focused 30 FundEQ-MLC469.27
Principal Focused Multicap FundEQ-MLC319.04
IDBI Focused 30 Equity FundEQ-LC277.56
BNP Paribas Focused 25 Equity FundEQ-MLC249.22
IIFL Focused Equity FundEQ-MLC179.67
Quant Focused FundEQ-LC4.09

Will Mirae Asset Focused Fund make a difference?

As of now, I do not see anything special or inviting to assume that it would make a difference. As an analyst (not investor, see below) one should wait and watch.  Has Mirae missed a trick by not naming Neelesh Surana along with Gaurav Misra (who co-manager of Mirae Asset India Equity Fund)?  Probably yes IMO, but it also means that they do not want to depend on one person too much.

Should you invest in this fund?

There are only two reasons one has to consider a focused fund. (1) Take a gamble on higher risk (due to the reduced number of stocks in the portfolio) hoping it will fetch higher returns (2) assume focused funds will have better sector and market cap representation.
Of course, all this assuming that the focused fund will be a core component of the portfolio else it will not make much of a difference. I doubt it if many investors would be willing to do that. They many interested but only for a “small exposure”, something I would like to call as small exposure syndrome.
Therefore, this is what I would suggest. If your portfolio needs it (and only if your portfolio needs it), you should consider a focused fund and that too only if you are willing to take on at least 30% exposure for goals that are several years away. Do not go by the AMCs “Recommended Investment Horizon”  which is 3-5Years or more for this fund.
If you actually have a need for this, you can take a chance with this fund if you like Mirae’s management and wish to start with a fund with low AUM. Choosing better established focused funds is fine but that would higher AUM. We do not know at what AUM does it become difficult for a fund to remain “focused across market cap” and become “focused large cap” funds. Either way, it does not matter as knowing how to review a fund is more important than selecting one.
Do you really have a need to invest in this (or any) NFO? Do you have the confidence to invest heavily in a focused fund (if necessary) and that too in an NFO? If yes, then go ahead. You have my respect.
For most people reading this, there would be no need for this or any NFO. Yet many would be “interested” in every NFO peddled by AMCs.
A fool and his money are welcomed!
The Official Rules: 5,427 Laws, Principles, and Axioms to Help You Cope with Crisis, Deadlines, Bad Luck, Rude Behavior, Red Tape, and Attacks by Inanimate Objects.’’ by Paul Dickson (page 181)
How about if we wait and watch for it perform and then consider it? Well genius, by that time, there would be no need for it in your portfolio!
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About the Author M Pattabiraman author of freefincal.comM. Pattabiraman(PhD) is the author and owner of freefincal.com.  He is an associate professor at the Indian Institute of Technology, Madras since Aug 2006. Pattu” as he is popularly known, has co-authored two print-books, You can be rich too with goal based investing (CNBC TV18) and Gamechanger and seven other free e-books on various topics of money management.  He is a patron and co-founder of “Fee-only India” an organisation to promote unbiased, commission-free investment advice. Pattu publishes unbiased, promotion-free research, analysis and holistic money management advice. Freefincal serves more than one million readers a year (2.5 million page views) with numbers based analysis on topical issues and has more than a 100 free calculators on different aspects of insurance and investment analysis. He conducts free money management sessions for corporates  and associations(see details below). Previous engagements include World Bank, RBI, BHEL, Asian Paints, TamilNadu Investors Association etc. Contact information: freefincal {at} Gmail {dot} com (sponsored posts or paid collaborations will not be entertained)
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1 Comment

  1. For all these years, many articles including in freefincal, have stressed upon the problems if investing in a fund with large AUM.
    Here is an NFO from an AMC which has a great track record of managing equity funds, it is very tempting to enrol into this fund at Rs 0/- AUM size.
    Fund manager is new to Mirae AMC, but has been handling such focussed portfolio in a PMS earlier.
    Yes, there is an element of uncertainty, which is generally the case with all funds irrespective of the duration, fund manager etc.
    But it is still tempting to see how this works considering the good track record of AMC.

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