Invesco India Focused 20 Equity NFO: Should You Invest?
In these volatile markets, when fund managers want to diversify and expand their losses, Invesco India goes the other way. It created a plan to invest in just 20 stocks. The scheme is open for subscription. The new fund offer (NFO) expires on September 23rd.
Under the current regulatory framework, a focused fund can invest in a maximum of 30 stocks at any one time. This is a distinguishing feature from other heterogeneous or plain-vanilla equity schemes. There is no limit on the number of subsequent stocks.
Invesco India Focused 20 Equity (IIF20) has a multi-cap portfolio. Initially, the scheme would involve a large allocation for large-cap stocks. However, allocations may vary depending on the fund manager’s view.
“Currently, a large portion of the portfolio will be invested in large-cap stocks (approximately 50 per cent – 70 per cent). Exposure to mid-cap stocks will be in the range of 30 – 50 per cent. The proportion invested in small-cap stocks will be in the range of 0 – 20 per cent of the portfolio,” says Saurabh Nanavati, chief executive officer, Invesco MF.
A focused fund comes with a concentrated portfolio of stocks. The fund manager should take high-confidence calls to overcome a small set of stocks. In a typically focused fund, a high-confidence stock bet is 5 – 10 per cent of the plan’s corpus. If such a stock bet is done well, it will translate into a sharp return for investors.
Invesco’s Focused Fund is managed by Taher Badshah, the home’s chief investment officer-equity. Badshah comes with a proven track record prior to joining Invesco, he managed Motilal Oswal Most Focused 25 and Motilal Oswal Most Focused Mid-Cap 30 funds.
Focused funds, if well managed, can give good stocks because performing stocks increase the luck of the whole scheme. In the polarization markets we have been seeing in recent years, focused funds are doing well. Plain-vanilla variation schemes sometimes end up with inflated portfolios – partly due to their large size – with long tails that have marginal allocations. Although some of these stocks show strong performance, investors may not benefit as the fund manager invests less or less in the stock.
What doesn’t work
Portfolio concentration can chase investors if stock calls do not work the way the stock does. The fund manager’s big bet can see a sharp cut in investor returns if he gets into any trouble. Reasons for a significant drop in the stock price can come from weak economies. It can sell by a large institutional investor or a corporate governance issue. To be sure, the fund house looks to mitigate such challenges through its risk management processes.
Investing in a focused fund can be tricky. The performance of a focused fund largely depends on the fund manager’s ability to identify stocks that can see a significant re-rating in values. If the fund manager acquires his stock-choice right, investors benefit from out-performance. The market’s run-up, but this can backfire as mentioned above.
While Badshah is a good stock-picker, the main flaw of any NFO is the lack of a track record. There are a lot of focused schemes with proven track records that investors can choose from.
For now, investors may skip the scheme until a track record is built.