Diversify to cut stock-specific risk

Sudhir Kedia, fund manager at Mirae Asset Mutual Fund Company, has over a decade’s experience in the capital market, largely in fund management and equity research. Prior to joining Mirae Asset, Kedia was associated with ASK Investment Managers as an associate portfolio manager. Kedia is a qualified CA and CMA and is also an MBA in finance.

Investment strategy

At Mirae Asset, Kedia manages the company’s Hybrid Equity Fund. His broad investment strategy is to buy growth businesses at a reasonable price. He generally keeps the equity portion of the fund in the range of 72-75 per cent and follows a bottom-up investment approach, with a focus on earnings growth and capital efficiency. While the portfolio building strategy is bottom-up, he keeps cognizance of the sectoral weights within the benchmark and allocates the weights accordingly. The idea is to outperform the sectors (within the benchmark) through right stock selection.

Given the risk profile of the investors of a hybrid fund, the portfolio is biased towards large-cap companies. “We maintain a fairly diversified portfolio to minimise the stock-specific risk.  We don’t try to make outsize returns from one single stock. We focus on building the portfolio such that all the holdings should contribute towards investment returns,” he says.

Any investment decision is based on five principles of investments. They are: (1) Accessing the size of opportunity; (2) Analysing the sustainable capital efficiency of the business; (3) Computing the potential earnings growth of the business; (4) Evaluating the management’s competence and intent for investor returns; and (5) comparing the current price with the expected value of the business.

“Our philosophy is to buy businesses where the opportunity is large, capital efficiency is fairly positive, leading to sustainable earning growth of mid –teens or more. We would let go opportunities, if we are not comfortable with the management,” remarks Kedia.

His strategy has reaped huge gains, with some of the investments in finance, auto, commodities generating alfa for the portfolio.

Kedia is optimistic on Indian economy and believes that the next 10-20 years will see sustained GDP growth and the equity market will reward investors in tandem with the GDP growth.