ABSL MF's conviction play sets stage for turnaround in performance

A rejig in the fund management team coupled with tweaks to the processes and strategies helps the fund house shrug off period of underperformance

After nearly four years of underwhelming performances in equity schemes, Aditya Birla Sun Life Mutual Fund (ABSL MF) is experiencing a revival. During the first quarter of the 2023-24 financial year (Q1FY24), the fund house arrested its declining market share, bolstered by stronger equity fund results and subsequent ratings upgrades.

Mahesh Patil, the chief investment officer, attributes this resurgence to changes in the fund management team and adjustments to investment strategies. "Our senior analysts, who have deep sectoral expertise, were given fund management roles as we recognised the need to augment team strength," Patil said. Additional sector analysts were also brought on board, enhancing the scope and depth of on-the-ground research, particularly in the thriving midcap and smallcap sectors.

Strategically, the fund house re-evaluated its approach to ensure it did not hastily exit high-performing stocks. This reconsideration came in light of the 2018-2019 period when ABSL MF funds had not fared well due to a limited rally focused on a few high-growth stocks. "Our investment style -- Growth at a Reasonable Price (GARP) -- led us to miss out on some of these stocks," explained Patil.

To address this, the fund house implemented a slew of changes, including a new stock classification framework, setting active weight limits for sectors and stocks, and enhancing ideation meetings. These adjustments have positively impacted investment outcomes from both macro and micro perspectives, Patil pointed out.

The enhanced focus on high-conviction stock picks has also proved beneficial. "In instances where we own more than 2 per cent of the paid-up capital of stocks, more than 75 per cent of those have performed well over the past year," Patil added.

CRISIL Market Intelligence and Analytics has upgraded three of ABSL MF's schemes — Focused Equity, Frontline Equity, and Pure Value — over the last year, comparing rankings from June 2022 and June 2023. However, its midcap scheme experienced a downgrade from grade 3 to grade 4.

While the recent improvements are encouraging, Patil concedes that the upswing cannot solely be attributed to internal changes, as market conditions also play a significant role in fund performance.