Edelweiss Focused Equity Fund: Should You Invest in a Concentrated Portfolio?
Mitali Dhoke
Jul 13, 2022
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India is in the midst of a secular development phase, during which a number of emerging businesses are displaying their potential for expansion. These businesses not only have a proven track record but also innovate and have evolving business models. As India grows, the various macroeconomic factors become favourable; these strong existing and emerging businesses will capitalise upon the lucrative opportunities and expand their footprint.
As a result, investors may consider taking advantage of the growing potential of these existing and emerging companies. However, with rising interest rates, geopolitical uncertainty, and spiralling inflation, the Indian market has experienced intensified volatility in the first half of 2022, and many investors are reluctant to engage in the equity market.
However, according to historical data, equity markets have performed well during rising interest rate cycles. On the other hand, mutual funds provide a concentrated equity portfolio that invests all of its assets in a limited number of high conviction stocks using a focused strategy. A focused equity fund with a limited number of stocks from across market capitalisation, sectors, and themes may offer investors better returns. As per the SEBI norms, focused equity mutual fund schemes are mandated to invest in a portfolio of a maximum of 30 stocks.
Given that there was discontinuation in the launch of NFOs until July 01, 2022, and now that SEBI's three-month ban on the introduction of new fund offerings has ended after a temporary pause. Edelweiss Mutual Fund has launched Edelweiss Focused Equity Fund, it is an open-ended scheme that will invest in 25-30 stocks spread across three key investing opportunities of brands, market share gainers, and innovators.
On the launch of this NFO, Radhika Gupta, MD& CEO at Edelweiss Asset Management Limited, said, "India is set for one of the best periods of business growth and transformation driven by several factors including compelling demographics, enabling regulation, strong manufacturing push, and accelerated digitisation. We believe that some key opportunities that are likely to dominate future growth will be tethered to investment opportunities like brands, market share gainers, and innovators and disruptors. To optimally capitalise upon these, we are launching the Edelweiss Focused Equity fund that will take concentrated exposure to companies within these three investing opportunities. We have always been very selective in launching new funds and have done them at the right time. Last year, we saw both markets and valuations stretching and took a conscious decision to avoid launching any new active equity funds. However, we believe that the current market landscape, post a significant correction, is ripe for such an offering and have thus chosen to launch this NFO."
Table 1: Details of Edelweiss Focused Equity Fund
| Type |
An open-ended equity scheme investing in a maximum of 30 stocks across market capitalisation |
Category |
Focused Equity Fund |
| Investment Objective |
The investment objective of the fund is to generate long-term capital appreciation by investing in equity and equity-related instruments of up to 30 companies across market capitalisation.
However, there is no assurance that the investment objective of the Scheme will be realized, and the Scheme does not assure or guarantee any returns. |
| Min. Investment |
Rs 5,000/- and in multiples of Re 1 thereafter. Additional purchase Rs 500/- and in multiples of Re 1 thereafter. |
Face Value |
Rs 10/- per unit |
| Plans |
|
Options |
- Growth
- Income Distribution cum Capital Withdrawal (IDCW)
|
| Entry Load |
Not Applicable |
Exit Load |
- If the Units are redeemed/switched out on or before 365 days from the date of allotment - 1.00%
- If the Units are redeemed/switched out after 365 days from the date of allotment - Nil
|
| Fund Manager |
- Mr Trideep Bhattacharya
- Mr Abhishek Gupta
|
Benchmark Index |
Nifty 500 Total Return Index |
| Issue Opens: |
July 12, 2022 |
Issue Closes: |
July 25, 2022 |
(Source: Scheme Information Document)
The investment strategy for Edelweiss Focused Equity Fund will be as follows:
Edelweiss Focused Equity Fund aims to generate long-term capital appreciation by investing in a concentrated portfolio of equity & equity-related instruments of up to 30 companies across market capitalisation.
The investment strategy is to build a focused portfolio of 25 to 30 stocks with strong business models; it aims to invest in 3 timeless investing opportunities under one portfolio.
-
Brands - invest in stocks of established & emerging brands across B2B and B2C segments
-
Market share gainers - invest in market-share leaders and emerging market-share gainers
-
Innovators - invest in stocks of companies that are innovators, adaptors and enablers of change in business dynamics.
The scheme follows a benchmark, sector and market-cap agnostic approach. The FAIR investment framework of the fund house helps in identifying Robust and clean businesses available at acceptable prices and also informs on their ESG standings.
-
Forensic - Use a forensic framework to check accounting quality, board governance standards and ownership background of the business.
-
Acceptable Price - Focuses on reasonably priced businesses with medium-term earnings power rather than short-term and be value/growth style agnostic.
-
ESG Informed - Be informed on ESG factors for businesses that we like to invest in and their impact on the environment and humans at large.
-
Robustness - Picks well-managed businesses having scalable opportunities and a superior return on capital employed.
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In order to have a concentrated portfolio, the scheme will follow a bottom-up stock selection approach. The scheme will reflect the best investment ideas of the fund manager at all points in time. The universe of stocks is carefully selected to include companies having a robust business model and enjoying sustainable competitive advantages as compared to their competitors. The scheme will invest in companies across market capitalisation and sectors based on investment opportunities that may arise from time to time.
Under normal circumstances, the asset allocation will be as under:
Table 2: Asset Allocation of Edelweiss Focused Equity Fund
| Instruments |
Indicative Allocation (% of net assets) |
Risk Profile |
| Minimum |
Maximum |
High/Medium/Low |
| Equity and Equity related instruments |
65 |
100 |
High |
| Debt & *Money Market Instruments |
0 |
35 |
Low to Medium |
| Units of REITs & InvITs |
0 |
10 |
Medium to High |
*Money Market instruments include commercial papers, commercial bills, treasury bills, Tri-party repo, Government securities having an unexpired maturity up to one year, call or notice money, certificate of deposit, usance bills, and any other like instruments as specified by the Reserve Bank of India from time to time.
(Source: Scheme Information Document)
Who will manage Edelweiss Focused Equity Fund?
Mr Trideep Bhattacharya and Mr Abhishek Gupta will be the designated fund managers for this scheme.
Mr Trideep Bhattacharya is a CFA, B. Tech from IIT, Kharagpur, and holds MBA (Finance) degree. He has over 13 years of experience as a Portfolio Manager and Research Analyst. Prior to joining Edelweiss AMC, he has worked as Senior Portfolio Manager - Alternate Equities with Axis Asset Management Company Limited, Head of Research with Motilal Oswal Securities Limited and Portfolio Manager with State Street Global Advisors, and UBS Global Asset Management Limited.
At Edelweiss Mutual Fund, Mr Bhattacharya currently manages Edelweiss Large & Mid Cap Fund, Edelweiss Mid Cap Fund, Edelweiss Flexi Cap Fund, Edelweiss Small Cap Fund and Edelweiss Long Term Equity Fund (Tax Savings).
Mr Abhishek Gupta is a CFA, holds PGDBM and B. Com degree and has an overall experience of 11 years in portfolio construction and management. Prior to joining Edelweiss, he has worked with Goldman Sachs Asset Management Limited. At Edelweiss Mutual Fund, Mr Gupta currently manages Edelweiss Large & Mid Cap Fund.
Fund Outlook - Edelweiss Focused Equity Fund
Edelweiss Focused Equity Fund endeavours to build a concentrated portfolio of 30 high conviction stocks. It aims to have an optimal level of diversification across sectors and market caps.
The fund's approach of creating a concentrated portfolio of robust stocks that are tied to the 3 timeless investing opportunities (brands, market share gainers and innovators) can potentially help investors capture both prevailing as well as emerging opportunities and generate reasonable returns over the long term. The scheme intends to invest in well-known and up-and-coming brands that command the loyalty of their clientele, as well as in market leaders, innovators, and disruptors who operate businesses with sizable market shares or have the potential to rapidly grow their existing market share.
However, do note that the fund will not replicate its benchmark in terms of sectoral allocation and market cap allocation. The fund will steer clear from taking any macro or sector calls and stick to a bottom-up investing approach.
In addition, being a benchmark agnostic portfolio, the strategy may underperform the benchmark in the short term or during the prolonged economic slowdown. If the fund managers' convictions prove worthy, investors are likely to benefit from optimal returns. But if the bet goes awry, investors may suffer heavy losses due to the concentrated nature of the portfolio.
Thus, it makes Edelweiss Focused Equity Fund a high-risk, high-return investment proposition and is suitable only for investors with the appetite for the higher risk this concentrated portfolio brings. You must ensure a long investment horizon of at least 5-7 years to survive the market volatility, and your investment objective must be congruent with the fund.
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Warm Regards,
Mitali Dhoke
Jr. Research Analyst