No one asked major questions when KN Sivasubramanian (53), fund manager & CIO of Franklin Templeton AMC retired last year after working there for almost 20 years. During his times fund performance was beyond any doubt. May be due to history of Franklin Templeton – 70 years of asset management history, presence across world, first to focus on emerging markets, managing almost $900 Billion (almost half of Indian GDP).
Image courtesy of 1shots at FreeDigitalPhotos.net
Let me remind you:
When you should sell your Mutual Funds?
In a nut shell one can exit his investments in mutual funds if:
- Your life-cycle stage has changed impacting your risk profile
- If the expense ratio of the fund rise
- If there is a major change in the attribute of the fund
- If the STAR fund manager is changed
- If fund is not complying to its objectives as laid down
IDFC Premier Equity Fund Manager Resigned
But when news broke in media that Kenneth Andrade (46), fund manager & chief investment officer resigned from IDFC AMC to pursue “other entrepreneurial options”, the investment community got jitters. I analyzed why investors should be concerned now:
- IDFC has very short history of managing retail investors funds (IDFC purchased Standard Chartered AMC in 2008, which had primarily assets in debt oriented funds)
- Kenneth Andrade was counted and accorded as star fund manager by the fund house and media.
- IDFC Premier Equity Fund was pathetic performer before Kenneth Andrade took the charge and after his handholding it made good returns for its unit holders.
- IDFC Premier Equity Fund is the flagship fund of IDFC AMC managing (Rs 7300 Cr – 66% of equity assets managed by IDFC AMC). It overshadowed other funds of its own fund house.
- IDFC AMC employees sold Kenneth Andrade’s exceptional performance (in mid-caps). This sales practice harms more when you create demi-gods and gods turn their back.
Let’s look in details at IDFC Premier Equity Fund & Kenneth Andrade contribution in that – before taking any call.
History of IDFC Premier Equity Fund
- This fund was launched in September 2005 – launch was no less than a film star launching his son. (marketing campaign created image of supernova being born, in midst of twinkling stars)
- Kind of forms that were printed – I have never seen them before or after this fund (printing cost must be at least Rs 100 for KIM) – distributors were given very limited forms. Forms availability was done when the business commitment was taken.
- Best story about the fund was that they declared on launch that they will be managing limited assets in these funds & if I am not wrong there limit was Rs 300 cr, which was achieved in NFO. Afterwards in future they managed it like Interval Fund, where they opened window for new investors on Fund Managers call. IDFC sales team exploited it well creating impression of New Fund Offer at every window when sale was opened in the fund. (but there are lot of loop holes in this to accept funds)
- Initial minimum investment size was kept at Rs 25000 – normally its Rs 5000 (to make sure its Premier and it’s for Premier)
- It underperformed before Kenneth Andrade took over – I still remember one of my friends regularly called it “PunarJanm Fund” in 2006 – highlighting the fact that you invest in this life & returns will be given to you in next life 🙂 [In mid 2006 it was negative 15% since inception – where other mid cap funds were only down by 8% in the same period]
Performance of IDFC Premier Equity Fund
Exceptional performance is visible in above chart – fund generated 625% returns in comparison to 255% by peers. But this gap started building after change in Fund Manager.
Discreet Performance of IDFC Premier Equity Fund
You can clearly see fund outperformed peers in 7 of last 8 years. Important thing to see is outperformance in falling markets (2008 & 2011)
IDFC Premier Equity Fund- Total Return Decomposition
This is the one of the key chart we use before selecting funds – this charts shows if a fund manager/AMC is adding value to a fund.
The chart shows:
- Total Return – The Total Return over a discrete period
- Alpha – The Alpha over the discrete period
- Beta – The Total Return minus the Alpha (the difference)
Reading the chart, you want lots of red at the top of the charts to show this.
Kenneth Andrade’s exceptional performance
Kenneth Andrade is a Commerce graduate from Mumbai University. Prior to IDFC AMC, he has worked with Kotak Mahindra AMC as fund manager (July ’02 – Sept ’05), SSKI Investor Services (Mar ’99 – July ’01) & (Jan ’02 -July ’02) in Portfolio advisory -Retail Broking Services, Nimbus Communications – (July ’01-Jan ’02) in Broadcasting – Content Development, LKP Shares & Stock Brokers Pvt. Ltd (Jan ’98- Mar ’99) as Analyst -Equity Research, Meghraj Financial Services (July ’96-July ’98) as Portfolio Manager.
Alpha Generated by Kenneth Andrade (Mid Cap Funds)
Kenneth Andrade Vs other Mid Cap Fund Managers
Kenneth Andrade in bull & bear market
100% outperformance in falling markets is commendable.
What investors should do now?
It’s not going to be a simple decision with your units, that we can use OLX to sell them in haste. These are hard times but with challenges open doors to opportunities.
- IDFC has decent equity assets and with this kind of assets they can attract good fund managers from the industry.
- A fund manager is face (agreed- a powerful one), but lot of people (co-fund manager, stock selection committee, sector analyst, Independent research units etc) and process (SEBI’s guidelines, fund house internal caps, in house researches, software-both internally developed and hired etc)-are attached to a fund. None of them have moved or could move with Kenneth.
- Even if you believe that new fund manager will not be able to match Kenneth – still this existing portfolio should have some power/fire for next few quarters. Wait & watch before taking any action.
- Our suggestion is add this to your watch list. Turmoil demands a cool headed decision.
Do you have investments in IDFC Premier Equity Fund or any other IDFC Fund? If yes, share your views or post anything which you feel discussing.
Thanks for sharing your views and updates Hemant. I think one should be optimistic and not shun the fund as there are several other people and processes that play a part in the success of a fund. It may happen that the new fund manager is able to keep the fund performance going and scale it to newer heights. Job change is part and parcel of every industry but life goes on. I am sure there will be knee jerk reactions but we need to be patient and keep the fund on our radar. I do have investments and SIPs going on in this fund
Thanks for sharing your views & there is no hurry to take decision. Kenneth’s investment style was totally different from any other fund manager that I observed – so we need to keep any eye on how this fund will be managed in future.
I don’t think there will be material change in fund’s policy. No doubt ability to pick good scripts is an art. In my view it is god gift+your market knowledge/co’s policy and lot many factors . Hope IDFC will continue the same spirit and zeal to continue the MF
We all wish “Best of Luck” to new Incoming Manager.
I agree “ability to pick good scripts is an art. ”
I worked with 2 AMCs – in both the AMCs there were STAR fund managers 🙂 but totally different investment style. AMCs checks & balances are most important part of fund management but role of fund manager is equally important.
Hopefully IDFC will bring good replacement.
Hi Hemant! IDFC Premier has been a Star Fund. Ofcourse during 2014 it has underperformed in its category. I think we need to watch the performance in next 3 Quarters, whether it is able to maintain in First Quartile in its category.
Any suggestions from you on how to take a Switch decision when an old Star Fund underperforms in 4 to 6 Quarters in a row.
Ya Sudhir – it can’t be like OLX ad “poorana jayega tabhi to naya ayega” 😉
I remained invested in this fund for around three years and got reasonable returns. I am not in this fund now.
Dear Anil Ji,
Any specific reason.
I think as you said Kenneths style of picking is very different. Look at his holding in fund… No pharma, very less focus on IT, not bothering to stick up with index like most fm do. Fund will definitely affected from his exit.
Btw I am an existing unit holder.
Yes Virendra – that’s a big concern. He always believed in buying quality businesses at lower valuation – not mimicking index or buying flavor of the season.
You are right. Kenneth’s buying style of picking stocks at lower valuation has made this kind of difference as compared to peer fund managers. Look at the portfolio. page, blue dart, VA Tech—. Now the issue is what level Exit takes place from these scripts as these are highly valued now. Kenneth might have his views at the time of picking.
Beyond fund manager skills, management support to allow the fund manager to work independently in his thought process to deliver good returns. I believe idfc management has given independence to him. I have seen a few star fund managers in top fund houses who were forced to launch nfos & take undue risk in their portfolio for profitability & performance pressure. I believe idfc as a group & fund house they r clean people & will continue their good work. I will continue my sips in it.
Sir, I agree with your view that when star fund manager move out we should think about our strategy towards that fund. I want you to write article also on what to do when star fund manager is not performing. I mean Mr. Prashant Jain ace fund manager of indian mutual fund industry could not deliver return and that happens twice within last 2-3 years span, if I am not wrong. HDFC top 200 fund gave average return parellael to benchmark only 2 years back, and last years performance if we talk both HDFC top 200 & HDFC equity fund is lagging around bottom 2 if we compare with peers. What could be analysis??
The moment I got the news about the exit of a star fund manager,, what I did was …simply halved my investment in the scheme & switch my money to other well established large and mid cap funds..For remaining half of my investment in the scheme..I will keep an eye on the performance for another 3-4 quarters..and then decide..whether to stick with it or not…
What is current situations for the same fund ? Should we exit now to switch?
I am planning to switch same amount to Axis mid cap. Any comments?
Till now Premier equity is doing at par with the peers, I dont see any big down movement the graph is similar to HDFC Mid Cap opportunities, so till the time we see a huge change , i would suggest to stick to it, also IDFC has appointed Aniruddha Naha since Sep 2015 + Punam Sharma since Sep 2015 as its fund manager.
Any idea about their background ?
Now that Anoop Bhaskar has taken over this fund, can we assume that the performance is only going to keep getting better and stay invested?
I was holding this fund. I waited till now ( Sep/2016) I found the asset value coming down means people are leaving the fund, so me too decided to sell out as there are better funds outside. As per my experience with other funds the performance of a fund is 95% depends on the fund managers views are ideas, so leaving with Kenneth.
Dear sir I want to about idfc MF premier equity fund this perfomenc I am not satisfied what should we do plz.tell in simple language can I switch in other fund.plz.suggeste other fund as soon as possible
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