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.