Indian markets cheaper but, it would not be safe to call a bottom yet
This is a time to do nothing as regards already invested equity portfolios. Indian markets have become cheaper and are in the attractive zone, but it would not be safe to call a bottom yet. There are multiple reasons which cause tailwinds for passive funds' adaption and "those reasons are beyond alpha or lack of it," says Aashish P Somaiyaa, CEO, WhiteOak Capital Asset Management, in an exclusive interview with Bizz Buzz
Your view on the amount of funds getting allocated to passive funds – domestically and globally, also how do active funds have an edge over the passive funds?
There are multiple reasons which cause tailwinds for passive funds' adaption and those reasons are beyond alpha or lack of it. The regulatory thrust on segregating the cost of fund management and cost of advice/distribution and push to advisory practice, institutional preference, government move to disinvest via ETFs, huge base of new entrants that are DIY and digital first, need for simplification of investing, etc., are some reasons.
Having said so, I do not believe that there is no alpha potential in Indian markets or that India is becoming like USA anytime soon on this front. Most passive evangelists taking a leaf out of the USA playbook overlook few data points. For instance in the USA in last 25 years the market capitalization of listed companies has gone up three times but, the number of listed companies has gone down by 50 per cent. There is significant institutionalization of markets, but, within that institutions have gone more than 50 per cent into the private market/alternative investing route. Buyout funds and private vehicles have seen exponential rise.
The recent BCG Global Asset Management report clearly shows that active to passive is not the only move, active is still gaining in absolute size terms and in share of pie terms active to alternates, solutions and specialty strategies is as big or bigger move than active to passive. My own understanding is that passivization is a misnomer. The rise of alternates and private markets means alpha has moved to alternates and private markets and probably just means alpha being stripped and sold separately from the beta.
Generally, it is seen that during the market correction times people make losses and then fear reinvesting. What would be your advice to investors in this regard?
This is a time to do nothing as regards already invested equity portfolios. As I said before no deterministic calls to be taken in either direction. As regards fresh deployment trickle in systematically and avoid making lumpsum bets for now. Indian markets have become cheaper and are in the attractive zone but it would not be safe to call a bottom yet.
Can you elaborate more on your AMC plans? By when can we expect the first product from WhiteOak AMC?
WhiteOak Group and its founder Prashant Khemka have been globally respected India equity managers over the years. Prashant was the lead portfolio manager and CIO at Goldman Sachs Asset Management for their India Equity and then Global Emerging Markets strategies and he has over 15 years track record of managing India Equity portfolios; first for 10 years starting 2007 at Goldman Sachs and then along with the team at WhiteOak since 2017. One of the funds managed by WhiteOak Capital in Singapore is a European mutual fund structure commonly known as a UCITS and available to global investors. It is the best performing India equity fund since its inception in 2018 and has a 5-star rating by Morning Star.
With total assets in excess of $6bn in Indian equities, WhiteOak Group is one of the largest managers for foreign portfolio investors and one of the largest PMS and AIF managers domestically. While it is a new brand in India's mutual fund space, neither the track record is new nor are the people at WhiteOak. WhiteOak Capital Asset Management will be a full service full scale retail asset management organization. In line with our competencies and past track record we will be launching with domestic equity funds followed by a global emerging markets fund and then hybrid and fixed income funds. We have already received the regulatory nod for our first proposed equity fund launch i.e. a FlexiCap Fund and we are planning to launch the NFO in April 2022.
Talking about distribution network, how many branches does WhiteOak AMC plan to open, can you throw some light on your focus regions/cities beyond B30?
WhiteOak Capital AM will have omni-channel presence i.e. physical, digital and virtual presence. In terms of physical presence we are planning to go to about 90 locations with 100+ branches. Needless to say a large proportion of the total branches will be beyond top 30 locations. Usually new AMCs do not venture beyond the metro cities and nowadays there is a pretty lop sided narrative on digital. Our view is that mutual funds are ubiquitous and industry has become a lot more meritocratic irrespective of geography. In the past having a brand ensured business was built, nowadays delivering performance and building business ground up creates the brand.
Can you talk about your digital plans to acquire customers/investors digitally?
We believe in multi-modal or omni-channel presence. We need to be where investors want us to be. While we will build our own digital interfaces, a larger part of the focus on digital will be to ensure partnerships with fintechs as well as stock brokers and make sure WhiteOak product and differentiated as well as insightful content in user friendly format reaches investors. Personally I am not a big fan of AMCs cluttering investors' digital real estate with multiple apps. But eventually when an AMC gains a sizable client base, just for providing alternative access to some service features and transaction convenience, investors do expect AMCs to have their own interfaces. Also I believe that a lot of digital is sensitive to market cycles and advisory support; to that extent digital does become assisted digital in many use cases that's why the focus on omni-channel presence; an AND approach rather than an OR approach when it comes to physical vs digital debates.
Can you explain to us the overarching strategy of your AMC, will it be any different than the PMS?
The investing process and philosophy is common to WhiteOak Group. Prashant Khemka, our founder, is the architect of the investing philosophy and process and since most of the research team has been with WhiteOak since inception in 2017 one can say that it is now part of the investing culture. The investment philosophy rests on four pillars of a) team, b) bottom of stock selection philosophy, c) balanced portfolio construction and d) our proprietary opco finco valuation framework. Even with a common underlying philosophy, the portfolio construction for the PMS and AIFs would be different from the mutual fund which is a mass retail product. In the mutual fund offerings the portfolio construction would be more balanced and in favor of seeking more consistent alpha as opposed to the high alpha with high tolerance for deviation that one finds in PMS and AIF.
Will the current geopolitical situation create any mid to long uncertainties for the market, your view on the current scenario?
The geopolitical situation is an evolving one. While there is no direct impact on India other than oil prices, we still have to watch for the situation to evolve, how long it lasts and the possible collateral damages. A sustained high level of oil prices with continuous uncertainty will surely impact economic growth and the external macros environment. At the same time it is a catch-22 because any positive news on the geopolitical confrontation can suddenly result in reversal of oil prices (which seems to have begun at the time of writing) and hence a reversal in the "risk-off" mode we are witnessing in foreign flows. Given this situation it is best to do nothing on funds that are already invested into equities and go slow with systematic investing for fresh funds. Taking any deterministic call on either direction is neither possible nor prudent at this juncture.
Is there any change in investing strategy that WhiteOak Capital has adopted with the market correction?
At WhiteOak the team firmly believes that macros such as geopolitics and their derivatives such as oil or commodity prices can not be forecasted. These are more in the nature of a coin toss. Hence, we do not take any timing calls or top down macro bets of any sort. But at the same time, it does not mean we do no respect them; we just believe it is not possible to make money off them. Hence we strive to run a portfolio that is neutral or perfectly balanced vis-à-vis macro developments such as oil and commodity price movements. To that extent we have rebalanced our portfolios to correct the high deviation from our benchmark i.e. BSE500 TRI in certain sectors and reduce risk of big underperformance in the quest for big outperformance.
Your view on sectors that you believe will emerge as a winner in the next few quarter/years?
WhiteOak Capital is not really a sectoral or top down investor, we have exposure to practically every sector. Having said so, the large private banks and IT/ITES/digital sectors that have been underperforming in this "risk-off" environment in sympathy with the rest of the world despite their good local results and strong local potential in the mid to long term are likely to reward in terms of outperformance going forward.