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ET Wealth­Morningstar Ranking: Here are the top 10 FundManagers 2015

On the high seas, it takes little to turn the tide and be tossed into a storm of uncertainty.

At such times, it helps to know that a seasoned hand is at the helm. 2015 has turned out tobe a choppy sea, with the Indian stock markets rocking in tandem with the global turmoil. Asdespairing market players have kept tabs on their investments, a section of investors hassat back without much concern, confident that their hardearned money is in good hands. Toshowcase these competent pairs of hands, we list the top 10 fund managers in this issue ofET Wealth.

Fund managers are entrusted with large sums of investors' money, a responsibility thatcannot be taken lightly. The person needs to have a thorough understanding of theeconomy and dynamics of the businesses that he invests in. He must be skilled enough tospot good investment opportunities, irrespective of the prevailing market conditions. Heshould also be able to drown out the noise and stick to his conviction even when theoverwhelming sentiment suggests otherwise.

At the same time, he should be able to own up to bad decisions, take corrective steps and ensure that the mistakes are not repeated.Above all, he needs to ensure that the investor is not exposed to undue risk while trying to generate healthy returns for him.

Only a handful of fund managers can boast all these qualities, and to find such gems, ET Wealth, in association with Morningstar, amutual fund research firm, has conducted a comprehensive exercise. We have sifted through piles of data to identify the top 10 investingwizards in the country (see How the ranking was done).

To be sure, the success of most of these fund managers stems not merely from their own irrefutable skills, but also from the quality ofprocesses in place at the fund house where they operate, as well as the crucial contribution by the supporting team of in­house analysts.Of course, some of the top performers in this list also owe their unmatched performance to the rally in the mid­ and small­cap stocksegment over the past year­and­a­half.

Having managed funds investing in the same category of stocks, their return profile has been boosted due to this rally. As a result, other

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prominent fund managers, with largecap oriented funds under their belt, have lost out. And as market conditions change over time, someof the fund managers mentioned here are likely to make way for others.

There are no perennial winners in the equity investing game. Nevertheless, investors in the respective funds can take tremendous comfortfrom the fact that these are the hands that are steering their ships. Read on to know more about these individuals and what makes themtick.

1) CHIRAG SETALVAD, HDFC MUTUAL FUND

Brief

Over the years, Setalvad has established his credentials as a quality fund manager, especially in the mid­cap space. He has proven hisability to execute the fund's strategy across bull and bear phases of the market.

Setalvad strives to seek an in­depth understanding of a business before investing in it. He endeavours to stick to his circle of competenceand avoids businesses that he doesn't understand well. His strength lies in conducting differentiated, alternative research, such asmeeting a company's supply­and­demand chain participants, talking to the regulators, etc. He says this is necessary to get an unbiasedview and understand the ground reality of the company, which many not be visible in numbers.

He prefers quality businesses growing at a healthy rate of at least 15­20% annually and generating a free cash flow on a consistent basis.

Setalvad also insists on taking advantage of market dips while buying these stocks, invests with a time horizon of 3­5 years and keeps alow portfolio turnover. Besides, he is comfortable about deviating substantially from the benchmark index while building a portfolio. In linewith the fund house philosophy, he does not take cash calls and prefers being fully invested at all times. He also tends to diversify heavilyin his portfolios.

Quick Bite

Greatest lesson: The importance of capital preservation. Often we focus on identifying winners, not on avoiding mistakes.

What's worked for me: A stockspecific approach. The focus is on quality businesses run by competent managements available at areasonable price.

Investments I regret: Where we have sold too early and have bought businesses that have lost money. I regret selling stocks simplybecause they looked fairly valued when seen from a oneyear forward multiple perspective. As a result we missed capturing the power ofcompounding.

Managing risk: Buy businesses at a discount to their intrinsic value to minimise price risk. Manage fundamental risk by staying within thecircle of competence and investing in businesses that are run well. As for the portfolio risk, we follow metrics which limit investment percompany, sector, etc.

On portfolio churn: We aim to keep the churning low. It helps minimise the cost for investors.

Outlook for next 5 years: The long­term secular growth prospects for India are sound. There is a strong consumption story, and theinvestment cycle should pick up as well.

Advice for novice investors: Asset allocation is the main driver for returns. Focus on getting an appropriate asset mix based on riskappetite, time horizon, and liquidity needs. Don't follow the herd. Invest for the long term and monitor investments periodically. Finally,invest regularly and try and put additional capital to work in tough economic conditions.

2) NEELESH SURANA, MIRAE ASSET GLOBAL INVESTMENTS

Brief

Surana's funds have been outperforming both the benchmark index and category peers since inception. His funds, Mirae Asset IndiaOpportunities and Mirae Asset Emerging Bluechip, have been table toppers in their respective categories, even as they have kept risksignificantly low.

Bottom­up stock selection has been critical over the past five years—a period characterised by high degree of volatility and divergentperformance within sectors—and Surana has made the most of this strategy. He believes that alpha (return higher than benchmark) canbe generated through the right set of stocks, not by sector rotation. This is the reason he doesn't deviate significantly in terms of sectorallocation relative to the benchmark. He prefers quality, growth­oriented businesses, but only at a reasonable price and likes to hold thestocks for long periods. Surana doesn't shy from taking contrarian calls. He asserts that the ideal time to accumulate is when goodbusinesses go through tough times, when the short­term prospects are impaired, but the long­term quality remains intact. He doesn't takecash calls or churn the portfolio, insisting that stock selection and portfolio construction have a more meaningful impact on the overallreturns.

Quick Bite

Greatest lesson: Do not sell a good business early.

What's worked for me: Disciplined approach to investing, with focus on quality.

Investments I regret: Mainly related to errors of omission. Missing a few good stocks primarily due to lack of understanding of thepotential of business.

Managing risk: At portfolio level, risk mitigation is done by assigning appropriate weights and not going overboard on a particular style,theme or a stock. At stock level, the risks are associated with business, management, or not having an adequate margin of safety.

On portfolio churn: The funds are actively managed and have a 'core' portion, as well as 'tactical' holding. Core holdings typically have avery low churn.

Outlook for next 5 years: Equities as an asset class is better poised for the next five years compared to real estate, gold, etc.

Advice for novice investors: Do not be deterred by macro noises. Invest in a disciplined way.

3) VINIT SAMBRE, DSP BLACKROCK MUTUAL FUND

Brief

Having a strategy focusing on small­ and micro­caps can be tricky and entail risks. Managing the liquidity situation in these thinly tradedscrips, recalibrating the fund exposure when smaller companies eventually outgrow the fund mandate are just some of the challenges thefund manager has to face. Yet, Sambre seems to execute the strategy with finesse.

After taking over the DSP BlackRock Micro Cap Fund in 2010, he has kept the churn to a minimum and has only underperformed thecategory peers once in a calendar year, that too, marginally.

His ability to capture the market upside is much better than most peers and he is also good at containing the downside risk. His strengthlies in extensive bottom­up research, identifying strong, growth­oriented businesses with healthy cash flows and supported by capablemanagement. Sambre doesn't like to be tied down to the benchmark index. He adopts an unconstrained, freewheeling approach. His topsector bets bear a marked contrast to both benchmark and category peers. He prefers to give a meaningful weight to his high convictionbets to ensure their performance has adequate bearing on the overall returns. Maintaining investing discipline is critical for a fund with an

inherently high­risk profile and it is evident in the way Sambre handles it.

Quick Bite

Greatest lesson: A disciplined approach to investment yields superior returns over the long term.

What's worked for me: Firstly, a big shift from unorganised to organised segment across various categories. Secondly, textile andspecialty chemicals, as a category, is benefiting due to significant business that is coming from the developed nations. Finally, theinvestment in fast­growing NBFCs has done well for the fund.

Managing risk: The biggest risk emanates from a faulty selection of companies and, hence, we try to carry out due diligence beforeinvesting in them.

On portfolio churn: Purchasing stocks with a buy­and­hold approach leads to a lower churning of the portfolio on an aggregate basis.

Outlook for next 5 years: As the economy picks up, we expect that the corporate sector will start delivering stronger earnings growthover the next few years. This, coupled with lower interest rates in the economy, should drive superior returns from equity as an asset classvis­a­vis other assets classes.

Advice for novice investors: Given the positive outlook that we have on equity over the next three to four years, the retail investors canincrementally consider a higher allocation to equities. They should follow a strict discipline in terms of equity investment and must avoid

low­quality traps. As the markets keep rising, the tendency is to keep moving down the quality chain.

4) SOHINI ANDANI, SBI MUTUAL FUND

Brief

The only woman fund manager on this list, and one among a handful across the entire industry, Andani has emerged as a dependablename over the past few years. Delivering healthy returns in a highly uncertain economic environment has been a challenge, sheacknowledges, but it is one she relishes as a fund manager.

With a predominantly growth­oriented, bottom­up strategy, Andani prefers asset­light businesses, which provide an earnings visibility of atleast 3­5 years, with an ability to generate a healthy cash flow, and where the size of opportunity is sufficiently large. The managementswith good execution capabilities and inclined towards capital preservation get her nod of approval.

She is equally adept at handling different fund strategies, which reflects in her funds' performance—SBI Magnum Midcap and SBIBluechip have boasted among the best risk­reward profiles in their respective categories over the past few years. Also evident is herability to handle performance across market cycles—her funds have captured more of the upside during market upticks and contained thedownside during market downturns in a better manner than the peers.

Quick Bite

Greatest lesson: Preservation of capital is very important.

What's worked for me: Quality outperformance.

Investments I regret: Wockhardt, JMC Projects and PC Jewellers.

Managing risk: Internal templates defining risk parameters are flagged off whenever in breach.

On portfolio churn: Buy with a 3­5 year perspective.

Outlook for next 5 years: Positive.

Advice for novice investors: Invest in equities with longer horizon and churn less.

5) KENNETH ANDRADE, IDFC MUTUAL FUND

Brief

Andrade's days as a mutual fund manager will soon be behind him as he is on the verge of exiting his current position of CIO at IDFCMutual Fund. However, we cannot begrudge him his deserved spot in our rankings, having emerged as the gold standard in the mid­capstock investing arena for the better part of the past decade.

Under his stewardship, IDFC Premier Equity has built a solid track record in the mid­ and small­cap segment, and it is not surprising thathe makes the grade in our ranking. His knack for spotting future growth leaders early on in their business cycles, and holding on to themas the growth story played out, has been responsible for the fund's stellar long­term performance.

During his years at the helm, he has stuck firmly to a bottom­up research, scouting for quality businesses that have the ability to scale upover a period of time. His exit is not only a loss for the fund house, but the fund industry as a whole.

Quick Bite

Greatest lesson: Extending my long­term horizon.

What's worked for me: Ability to pre empt changes in economy and polarise capital in some significant trends.

Managing risk: Tried to focus on buying companies that have low financial leverage.

On portfolio churn: A good company should never get sold.

Outlook for next 5 years: Equity can deliver a double­digit return.

Advice for novice investors: Be comfortable in the asset class you invest in. If you don't understand it, ask questions.

6) HARSHAD PATWARDHAN, JP MORGAN MUTUAL FUND

Brief

Patwardhan boasts a good performance track record. His investing style is built on three pillars. First, given the nature of our economy, heseeks businesses which offer significant growth compounding opportunities over long periods of time.

Second, he believes that stock prices tend to track business values over long periods, though, sometimes, these move in a way that is notreflective of the value addition in the business. As such he does not chase stocks that may seem fashionable at the moment but are notgenerating value for shareholders. Third, he is primarily a bottom­up stock picker, who believes that a top­down view is necessary attimes, but is not sufficient.

He only looks at the aggregate sectoral exposure to ensure he is not overexposed to a particular sector. Patwardhan follows abenchmark­agnostic style of portfolio construction, willing to deviate substantially from the benchmark in order to generate alpha forinvestors. The extent of diversification or concentration in his portfolio is more a function of the level of conviction he has in the businessand economy at any given point in time. He typically looks to hold a stock for at least three years.

Quick Bite

Greatest lesson: It pays to ignore the noise and focus on business fundamentals.

What's worked for me: Following our research process.

Investments I regret: Investment hypothesis prove wrong at times.

Outlook for next 5 years: Cyclical recovery and structural reforms will drive the economy and markets over the next few years.

Advice for novice investors: Work with financial advisers to formulate asset allocation plan.

7) SAILESH RAJ BHAN, RELIANCE MUTUAL FUND

Brief

For this experienced hand, there is never a dull day in office and the market is always ripe with opportunities to invest. Managing `14,035crore of assets, Bhan adopts a predominantly bottom­up approach, though he does take the topdown view to identify pockets where theremight be value.

He scouts for businesses that provide sustainable growth in profitability based on some competitive edge, buys them at the right price andholds them for the long term.

Bhan focuses not only on generating alpha, but also retaining it over the years. That is why he stresses on holding businesses for at least7­8 years. He doesn't shy away from taking significant sector deviations but limits aggressive exposure to three sectors at a time and

maintains a reasonably diversified portfolio of stocks. He is equally adept at making the most of a rallying market and containing thedownside during a downfall. Bhan concedes that going against the herd takes a lot of gumption; however sound the rationale behind thebet, there are multiple opinions against it. Still, he has proved over time that it can prove very rewarding.

Quick Bite

Greatest lesson: Quality and sustainability of business over cheap valuations have disproportionate, long­term pay­offs.

What's worked for me: Embracing short­term market volatility.

Managing risk: Differentiating volatility from risk is key.

Outlook for next 5 years: Indian economy will accelerate over the next few years.

Advice to novice investors: Focus on long­term wealth creation over momentum investing.

8) ANOOP BHASKAR, UTI MUTUAL FUND

Brief

Bhaskar likens his role of a fund manager to running a marathon. His performance is reflective of this approach­his funds have beensteady and dependable performers over the years, coming out stronger over an entire market cycle.

Under his watch, barring one calender year, his funds have have always outperformed the category peers. The riskreward profile of hisfunds also tends to be superior to many of his peers.

Bhaskar's aim, surprisingly, is to simply avoid being in the bottom quartile in terms of fund performance. However, the logic behind this issimple: if one succeeds in doing so over a longer time period, one will end up being in the top quartile. Besides, he reckons that aiming forthe top percentile leaves one equally susceptible to a fall to the bottom percentile of performers in another period. Even though he lamentsthat his job limits the ability to control his own fate—being ultimately at the mercy of his chosen companies' actions—Bhaskar's provenexecution capabilities over so many years should be comfort enough for investors that their money is in the right hands.

Quick Bite

Greatest lesson: Styles and flavours come and go. Focus on consistency.

What's worked for me: Keeping portfolio beta low.

Investments I regret: Over last two years, selling has been the regret.

Managing risk: Ensure higher proportion of portfolio is made of companies which represent the investment thought process.

On portfolio churn: Be truthful.

Outlook for next 5 years: Domestic economic revival should lead to sustained multi­year bull market.

Advice for novice investors: First save, then invest in financial assets.

9) JAYESH SHROFF, SBI MUTUAL FUND

Brief

The dynamic nature of his chosen profession is what drives Shroff to deliver his very best. He doesn't like to be pigeonholed into aparticular style of investing and is comfortable making use of both growth and value approaches in his portfolio, albeit leaning moretowards the former.

He also deploys a mix of top­down and bottom­up strategies in his portfolio construction, favouring a thematic approach to fundmanagement in terms of the choice of sectors because it lends aggression to the portfolio.

He is attracted to businesses which exhibit a big change, whether in terms of competitive intensity, management, regulation or other keyparameters. He also prefers buying into sector leaders that have a disproportionate share in the market.

Shroff makes no compromise on the quality of management driving the business even if it means forgoing returns in the short term, oreven if quality is available only at a premium. He admits that resisting the temptation to generate short­term return is a challenge, butinsists that it should never come at the cost of diluting the central philosophy of the fund.

Quick Bite

Greatest lesson: Do not get carried away by shortterm noise.

Investments I regret: There is a long list of regrets for investments not made.

Managing risk: Quality of management is the biggest hedge.

On portfolio churn: I don't churn my portfolios too often.

Outlook for next 5 years: Very optimistic.

Advice for novice investors: Those who stay invested for long always make more money.

10) R SRINIVASAN, SBI MUTUAL FUND

Brief

Srinivasan becomes uneasy when any of his funds climbs to the top of the performance charts. The reason is simple: the attention itgenerates results in a sudden, large flow of money to the fund, which poses a problem as a fund manager.

However, he can blame his own investing acumen for this because his funds often find themselves among the table toppers. For instance,two of his funds­SBI Magnum Balanced Fund and SBI Small and Midcap Fund­have been featuring among the top three in theirrespective categories for the past three years.

Srinivasan aims for a sustained top quartile performance, where the returns are healthy and consistent. He is quick to dismiss his owncontribution to his funds' performance and credits his team of analysts for coming up with solid stock ideas for the funds on a regularbasis. Nevertheless, it is clear that execution of the fund strategy is in the hands of a very capable fund manager. A mildly concentrated

portfolio construction with a strong growth bias is evident across his funds, which boast a superior risk­reward profile compared to peers inrespective fund categories.

Quick Bite

What's worked for me: The quality bubble has worked in our favour, so has discipline.

Investments I regret: JPVL, Wockhardt, United Bank, JSPL, McDowell Holdings and many more.

Managing risk: We have internal templates that define risk parameters. These are flagged off whenever in breach and duly corrected.

On portfolio churn: Higher portfolio churn is either an indication of a lack of understanding on stocks or a reflection of a trading mindset.Advice for novice investors: Stick to the desired asset allocation.

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