Small, midcaps highly cyclical, best to invest through SIPs: WhiteOak CEO

In an interaction with Abhishek Kumar, Somaiyaa says investors should prefer hybrid funds in the current scenario

Even though the markets have sailed through negative developments in recent months, investors who are over-exposed to narrow market segments should exercise caution in the next 3-6 months, says Aashish P Somaiyaa, CEO – WhiteOak Capital Asset Management, in an e-mail interaction with Abhishek Kumar.

Markets have interacted with several negative developments in recent months, from the rise in oil prices to the Israel crisis. What is behind the resilience? 

Not just the West Asian flare up, markets seem to be sanguine about US interest rates, and the upcoming political season. This could be due to investors’ confidence in the domestic economy and the recent effect of the sharp run-up since March this year. Having said that, investors who are over-exposed to a narrow segment of the market, be it sector or market capitalisation, should exercise caution in the next 3-6 months.
 

Hybrid funds are the center of attention with back-to-back fund launches. For investors, which hybrid category makes most sense right now?

The view on equity is mixed right now — there are some concerns in the near term but the medium-to-long term outlook remains bullish. In such a scenario, investors should prefer mixed asset funds. If we take risks around geo-political factors into consideration, multi-asset funds emerge as a better option among hybrid offerings. The global macro is subject to serious risks, which can weigh down the equity market and provide tailwind to gold. In addition, the interest rates are at historic highs and the rupee is near all-time lows. Any reversal will lead to gains for bonds.

Your flexicap scheme has 100 stocks with almost 80 of them having less than 1% weight. Isn't it over-diversified?

You have to create active weights in your portfolio to generate outperformance over the benchmark BSE 500. In our scheme, the active weight in this portfolio is north of 60 per cent. The idea behind having broad portfolios is to prevent a particular theme or a style from having a large sway on the performance. This is crucial as you are competing with the benchmark, which itself has no biases based on style, theme or market-cap.
 

You have stopped taking lump sum flows into multicap and midcap funds despite their small size. What is the reason?

Equities’ performance is cyclical in nature, which is more pronounced in narrow segments like smallcaps and midcaps. Given that it’s near impossible to consistently time the entry and exit, a staggered approach is a better investment option. Further, there is a predisposition amongst investors to choose funds based on recent past performance. This leads to higher inflows at the wrong time. Hence, it’s better for investors and the fund managers if the money is spread out over time.

In mcaps, where are you seeing better opportunities? Have you raised allocation in any of the segments in flexicap and multicap funds?

We do not take sectoral or market cap level calls. Stock-specific fundamentals drive the stock selection. There are good stocks even in segments facing numerous headwinds. In our flexicap fund, the mid and smallcap allocation generally range from 30-50 per cent. In the multicap fund, they range from 50-70 per cent. However, if some pockets run up considerably, the team reviews portfolio positions.

What is the suggested equity allocation in your hybrid models?

Equity exposure in the balanced advantage fund was around 55 per cent at the end of September. That’s the midrange.