Mutual Fund selections at IME Capital are driven by our 3 stage fund-selection criteria, as detailed in our blog post – IME Mutual Fund Selection Methodology. The first factor that we consider is our rating of the AMC, which focuses on the relative scale of the AMC, it’s pedigree & ownership and their relative strengths & weakness in specific categories. This blog post provides some further details into the various AMC’s that we recommend (and the AMC’s that we do not), the categories we focus on in specific AMC’s and the buckets we broadly break these AMC’s into.
This is only one of the 3 factors that go into fund selection
This blog post describes some of the main considerations that go into different categories of AMC's and the categories that we typically see as best-fit for these AMC's. However, since this is only one of the 3 factors that go into fund selection, scores on the other 2 factors may lead to fund recommendations that differ from the broad category focus of different types of AMC's defined below.
Our MF recommendations are typically only from 10 core AMC's
As this blog post explains, different AMC's have value across different categories. We have carefully taken AMC strengths into account while selecting funds (in addition to other factors), and accordingly we focus our recommendations around the following 10 AMCs:
- Top 3 AMCs: SBI, ICICI, HDFC
- Scale AMCs: Birla, Kotak, Nippon, Axis
- 3 Interesting Niche AMCs: Parag Parikh, Mirae, WhiteOak | These are primarily recommended due to strong rigour around investment philosophies & processes
The Top 3 (4 lakh+ cr AUM)
AMCs: SBI, ICICI, HDFC
The Pros
- Research Teams & Research Access: These AMC's have achieved a large enough scale to invest in large research teams, and these AMC's will also have the best access to broker research & analysts, top managements in corporates, channel partners etc. The scale also does help reduce the risk of fund manager churn, since these AMC's would typically find it easier to attract top-quality talent.
- Typically more conservative: The focus at these larger AMC's is typically to ensure longer-term consistency of returns, and fund managers would typically not take very aggressive calls, as may be seen in smaller-AMC's.
- Recommended Categories: These AMC's are best suited for more conservative categories include debt funds, hybrid funds, large-cap and large & mid cap categories.
The Cons
- Not very nimble: The larger AUM that these firms manage, can make it more difficult for them to re-position portfolios aggressively (especially in more illiquid categories of funds).
- Not typically recommend for small & mid-cap strategies: These AMC's typically would focus more on larger companies, which makes them not the best suited for small & mid-cap strategies.
- Not Recommended Categories: Small-cap, Mid-cap
Other considerations
- CIO Churn: SBI's Equity CIO Naveen Munot recently quit SBI to join HDFC. We believe that SBI has enough depth in it's investment team to manage this transition. HDFC has seen underperformance in it's equity portfolio in recent years, and it is hoped that Naveen's introduction should help arrest some of this underperformance.
Scale players (2-4 lakh cr AUM)
AMCs: Aditya Birla, Kotak, Nippon, Axis, UTI
The Pros
- Research Teams & Research Access: The substantial size & scale allows these AMC's to invest in large research teams, and these AMC's will also have good access to broker research & analysts, top managements in corporates, channel partners etc. The scale also does help reduce the risk of fund manager churn, since these AMC's would typically find it easier to attract top-quality talent.
- A good blend between conservatism & agility: These AMC's would typically not take disproportionate risk (as sometimes seen in smaller AMC's), but are still at a level that they can remain relatively agile.
- Recommended Categories: A good blend between conservatism & agility makes these AMC's a good option across most fund categories.
The Cons
- May not be suitable for very conservative or very aggressive investors: For whom the top-3 AMC's or smaller AMC's (or PMS/AIFs) may be a better fit.
- Not Recommended Categories: N.A. These AMC's are a good fit for most categories.
Other considerations
- Nippon AMC: Has seen a number of changes in recent years, including (a) a change in ownership with Nippon buying out Reliance (b) its equity CIO Sunil Singhania leaving Nippon to set up Abakkus. We believe that Nippon has enough depth in it's investment team to manage the impact of it's CIO leaving and with Nippon taking over ownership any concerns related to the ADAG group have been addressed.
- UTI not recommended: Due to concerns around government ownership & control
Mid-sized players (50,000 -2 lakh cr AUM)
AMCs: Bandhan (earlier IDFC), DSP, Mirae, Tata, HSBC (earlier L&T), Franklin, Edelweiss
The Pros
- Greater potential agility with some level of comfort on scale: A relatively smaller size compared to the larger players, helps make these AMC's more agile in terms of portfolio changes. The scale that has been achieved, does help in terms of building a good investment team, with decent broker & corporate access, even as this is not at the same level as the larger firms.
- Recommended categories: For AMC's in this bucket, the focus is more on specific funds that we see value in, as compared to specific categories that we see as a good overall fit.
The Cons
- Risk of corporate action & fund manager churn: AMC's in this category are not meaningless players, but have also not achieved a level of scale that makes them very attractive businesses for their owners. This does increase the risk of ownership changes - as seen at IDFC, DSP and rumors of L&T.
- Risk of Fund Manager churn: AMC's in this category may not have the ability to attract an equal level of talent, in case one of their CIO's or star-fund managers were to exit. FM churn has been relatively high in this category, with notable exits of senior members of the investment team seen at IDFC, DSP and Tata.
- Not recommended categories: We prefer playing niche managers & small-cap categories via the PMS-AIF route, given the greater level of focus and stability of the team (in case of owner-managed PMS's). With a few specific funds, we typically prefer going with the Top 3 for conservative categories and scale players for other categories. We accordingly typically do not recommend funds from these AMC's, with a few exceptions on AMC's or funds where we see specific value.
Other considerations
- Mirae AMC: The AMC has delivered strong outperformance with a high degree of consistency, which leads us recommending some of their schemes. We are however clearly mindful of the risk, that replacing their core-CIO could be a big challenge should he decide to exit (as seen with the same risk materialising in case of Canara Robeco, another small AMC with consistent outperformance).
- Continues to see high Corporate Actions: In recent times, Bandhan acquired IDFC and L&T was acquired by HSBC.
Small AMC's (below 50,000 cr AUM)
AMCs: Canara Robeco, Invesco, Sundaram, Motilal, PPFAS, BNP, PGIM, LIC, HSBC and others
The Pros
- A few niche players: While concerns around AMC ownership & FM churn are very high in this segment, there is some level of value in a few specific niche players. These are considered on a case-to-case basis in our fund ratings, and primarily include players like Motilal & PPFAS (for a clearly defined investment philosophy), Sundaram (considered to be a mid-cap specialist for South based companies) and a few newer entrants/planned entrants (from established PMS Providers such as WhiteOak, 360 One, Quant, OldBridge, Helios etc.).
- Recommended categories: For AMC's in this bucket, the focus is more on specific funds that we see value in, as compared to specific categories that we see as a good overall fit.
The Cons
- Risk of corporate action & fund manager churn: AMC's in this category have also not achieved a level of scale that makes them attractive businesses for their owners. This does increase the risk of ownership changes - as seen at IDFC, DSP and a number of smaller AMC's.
- Risk of Fund Manager churn: AMC's in this category may not have the ability to attract an equal level of talent, in case one of their CIO's or star-fund managers were to exit. FM churn has been relatively high in this category, with notable exits of senior members of the investment team seen at Canara Robeco, Motilal amongst others.
- Not recommended categories: We prefer playing niche managers & small-cap categories via the PMS-AIF route, given the greater level of focus and stability of the team (in case of owner-managed PMS's). With a few specific funds, we typically prefer going with the Top 3 for conservative categories and scale players for other categories. We accordingly typically do not recommend funds from these AMC's, with a few exceptions on AMC's or funds where we see specific value.
Other considerations
- PPFAS AMC: The AMC has delivered strong outperformance with a high degree of consistency, which leads us recommending some of their schemes. We are however clearly mindful of the risk, that replacing their core-CIO could be a big challenge should he decide to exit (as seen with the same risk materialising in case of Canara Robeco, another small AMC with consistent outperformance).