Why ‘special situation’ funds have nothing special for their investors | Jobs Vox

Benjamin Graham, known as the father and author of value investing Security analysisDiversified corporate transactions, including mergers, business unit sales and liquidations, corporate litigation and mergers. These special conditions provide good buying opportunities for investors.

Neil Bahl, founder and CEO of Negan Capital, said in an interview. Mint Investing in October 2022 Special Conditions is an advanced form of value investing. He cited the example of Berkshire Hathaway in America, which was a textile business before Warren Buffett took over the company. “Buffett’s takeover of the business at $14 per share changed the DNA of the company. It went into chocolate, furniture and even insurance. The business has completely changed direction and this is what you call an exceptional situation where some event happens and changes the DNA of the business,” Bahl added.

However, investing in exceptions is a very high-risk investment strategy and has serious implications if the investor’s call is wrong.

There are three funds in India that follow the unique status theme of Total Assets Under Management (AUM). ₹9,400 crore—ICCICI Pru India Opportunities Fund, Axis Special Situations Fund and Aditya Birla Sun Life Special Opportunities Fund These funds, however, follow a broader mandate to pick opportunistic stocks based on sector and economic trends, not just based on corporate performance. Therefore, these schemes, which invest in 44 to 72 stocks, have a diversified portfolio unlike a typical mutual fund which usually holds a concentrated portfolio.

The interesting observation is that the portfolio of each of the three funds is similar or less than the existing fund offered by the same asset management company (AMC).

ICICI Pru India Opportunities Fund

In the year Launched in January 2019, this fund is the oldest with a mandate to invest in three types of exceptional situations – temporary crises in a company, sector or economy; Regulatory changes; International events – offers good shopping opportunities.

Over a period of three years, the fund has delivered a good 26% CAGR (compound annual growth rate) with the help of value investing style which is currently popular in the market.

A closer look at the portfolio, however, reveals that this fund is similar to AMC Value Discovery Fund, which is run by the same fund manager – Sankaran Naren. Both the funds have 32 stocks in common, accounting for 82 percent of the India Opportunities Fund’s portfolio as of November 2022.

Bharat Pareek, Product Head Private Wealth Management, ICICI Securities, said, “Both Value Discovery and India Opportunities Fund have made similar changes to their portfolios in the last one year. The latter is recommended to clients as a value option, not as an exceptional fund.

ABSL Special Opportunities Fund

Aditya Birla Sun Life Mutual Fund has merged the erstwhile Special Situations Fund, Diversified Equity Scheme into Aditya Birla Sun Life Equity Fund in April 2018 as per market regulator SEBI’s guidelines on mutual fund schemes category. In the year On October 23, 2020, the fund house launched the ABSL Special Opportunities Fund.

Like ICICI Fund, this scheme also deals with unlimited opportunities on company-specific events.

Mahesh Patil, Chief Investment Officer of the fund house, explained how changes in the sector from the growth of the chemical sector, with the help of ‘China Plus One’ strategy, will provide opportunities for this fund. He also cited the fund’s investment in an electrical company that recently divested a business unit as an example, explaining the strategy of finding value in a company’s special event. He declined to name the organization, citing fund policy. The fund is dedicated to the large-cap segment and has 38 stocks, similar to Aditya Billa’s Flexi Cap Fund, which invests heavily in blue-chip companies. The 38 stocks make up 76% of the fund’s portfolio.

Axis Special Conditions Fund

Known for its growth investment style, Axis Mutual Fund has introduced a Special Situations Fund focusing on companies disrupting business models and others in such an ecosystem.

“We are trying to identify the companies that have the highest growth in their respective sectors. Also, often, the prices of these funds may not be at the lowest,” Fund Manager Ashish Naik. The fund’s portfolio reflects the same, holdings such as Zomato and Infoedge.

Axis Special Situations Fund is the only scheme in this category with global exposure (about 27%, as of November 2022) recommended by UK-based Schroder Investment Management, which also focuses on a disruptive philosophy.

This fund, however, is similar to Axis Growth Opportunities Fund in the large and mid-cap category. This fund makes overseas investments with the advice of Schroder. Of the 73 stocks held by Axis Special Conditions Fund, there are 35 stocks (61% of the portfolio) jointly with Growth Opportunities Fund.

Are these relevant now?

Santosh Joseph, an AMFI Registered Mutual Fund Dealer, has no interest in Special Situation Funds at present. “Multi-cap Flexi Cap or Large Cap Diversified Funds hold most of the current portfolio,” he added.

Kushik Mohan, who managed the Special Situations Fund at MOAT PMS a few months ago, strongly believes that mutual funds can deploy the current investment style in any diversified fund like value or contra funds.

“The portfolios of all three discretionary funds are slightly skewed towards large caps. I believe the real value in discretionary funds will come from the mid- and small-cap space,” said Mumbai-based mutual fund dealer Rushabh Desai.

Desai, co-founder of Rupi with Rushab Investment Services, said, “Investors can definitely live without the exceptions category. Any fund manager of flexi cap strategy funds can take advantage of the same and diversify their portfolios according to the dynamic nature of the markets.

Investors should note that in the PMS (Portfolio Management Services) space, there are two special case funds that follow the same investment strategy. (see chart).

Vishal Dhawan, founder and CEO of Plan Future Wealth Advisors highlighted that special situation funds in the PMS space can be strategically opened up to take advantage of such opportunities. He gave the example of Unifi PMS, which has a ‘Spin-Off’ fund that focuses on demergers, and said that this fund will not accept capital as opportunities under this category may be limited.

Mohan, now principal equity analyst at Ashika Institute, cautions investors to be patient when investing in truly exceptional funds as sometimes it may take a long time before a shareholder can witness the benefits of ‘unlocking value’ in such companies. .

Should you invest in these?

There is nothing special about mutual funds in India. The benefit of investing in these schemes can be achieved by allocating your funds to any well-managed diversified mutual fund scheme in India.