HDFC MF confident of life after Prashant Jain

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The news of Prashant Jain’s resignation on Friday created ripples in the mutual fund industry. He was the chief investment officer of HDFC AMC, which is currently managing more than 4 trillion of assets, for almost 19 years.

Chirag Setalvad, a senior equity fund manager, will assume charge as head of equities at the fund house, and Shobhit Mehrotra, a senior debt fund manager, will take over as head-fixed income. Both will report to Navneet Munot, managing director & CEO of the company.

Jain’s investing style

Jain followed the value style and invested in sustainable businesses. He first stood out as a fund manager when he stayed away from the highly valued technology stocks during the late 1990s, which helped him avoid the impact of the dot-com bubble in 2000.

He will also be remembered for avoiding real estate stocks when they were highly favoured by money managers in 2007-08. This resulted in his funds outperforming post the stock market crash in 2008 compared to their peers.

 

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In both instances though, the outperformance of Jain’s funds was followed by a painful period of underperformance caused due to his contrarian bets. His funds are in the limelight now again with markets favouring the value stocks. This time is no different. The current outperformance of his funds has been followed by a prolonged period of underperformance for about 4-5 years.

In an interview to Mint in 2020, he had said, “It is indeed true that performance has been weak for the funds managed by me. The primary reason for this is the overweight position in utilities, tobacco and select EPC companies along with an underweight position in consumption companies and retail banks vis-à-vis the benchmark.”

Jain had also shared his investment framework then: “I generally follow the following framework: If the business is doing fine and the outlook has not changed, but the stock is underperforming, it possibly implies that the stock is becoming more undervalued. In such a situation, generally, one should stay put or increase exposure within limits to control risk. If the business is underperforming, then one needs to assess whether the reasons for underperformance are temporary or lasting? If temporary, then one needs to assess whether the expected returns justify holding the stock for longer. If the answer is yes, then one tends to wait, else take corrective action.”

As on the date of Jain’s resignation, he was directly managing three funds— HDFC Balanced Advantage, Flexi Cap and Top 100 Fund (large-cap fund)— with combined assets of about 90,000 crore. Jain was managing the Balanced Advantage Fund since its inception in 1994, when it was part of 20th Century Mutual Fund, which was later acquired by Zurich India Mutual Fund, and which, in turn, was bought by HDFC Mutual Fund in 2003. All the three funds delivered a good return of 18-20% CAGR (compounded annual growth rate) since the time Jain has been managing them.

“Prashant Jain hasn’t changed in all these years, even in the face of criticism. I admire him for it. No great fund manager can be consistent! You figure out their level of conviction in difficult times. However this also means that you have to be comfortable with their style and these can work in cycles. At this point, I’m not redeeming from HDFC AMC. In fact, with the kind and quality of fund managers HDFC MF have, I’m likely to invest more in the AMC’s schemes,” says Vijai Mantri, co-founder and chief investment strategist at JRL Money.

Mantri was a senior executive at HDFC AMC before 2007 and worked alongside Prashant Jain before becoming a mutual fund distributor in 2015. At the time, he did not recommend HDFC MF schemes due to their ‘value’ style of investing. Mantri, however, changed tack after Covid struck in 2020, anticipating that a rally in value stocks will lift up HDFC MF’s performance as well.

What should investors do?

Jain’s exit from HDFC Mutual Fund shouldn’t be much of a concern to those invested in the schemes of the fund house, according to experts.

HDFC Mutual Fund is keen to reduce the dependency on an individual fund manager and is keen to adopt an institutional framework. In addition to Chirag Setalvad, other senior fund managers in the fund house include Gopal Agrawal and Roshi Jain. Setalvad, who will be the new head of equities, has been with the fund house for more than 15 years. Unlike Jain, Setalvad’s investment style is a blend of growth and value

Vishal Dhawan, founder & CEO of Plan Ahead Wealth Advisors, said, “I think it’s important to track how the funds actually perform going ahead before any decision is made rather than directly shifting due to a blended style. Investors should track performance for a year before they make any changes.”

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