'Time to look at investing outside the country'

“We continue our stance of raising a red flag when inflows start growing to unreasonable levels”, says Swarup Mohanty, CEO, Mirae Asset Investment Managers. In this interview with ET Wealth, he discusses the AMC's recent thrust towards passive strategies and more. Mirae Asset MF has further gated inflows into its Emerging Bluechip fund. Is the rapid pace of AUM growth still a concern?The pace of growth of funds, especially with mid-cap holdings, needs to be taken into consideration while building a fund for the long term. A fund should be allowed to grow at a pace that enables the absorption of money into its underlying stock in a healthy manner. Indian markets are illiquid and one has to keep that in mind at all times. When we closed lumpsum investments into Emerging Bluechip in 2016, its AUM was Rs 2,600 crore. Today it is over Rs 16,000 crore and it is the largest large and mid-cap fund. When a fund is allowed to grow at a reasonable pace, the outcome can be satisfactory. This is not taking anything away from the fund management processes or the fund manager’s stock picking ability. The fund has built up a strong SIP book per month which is in accordance with desired inflows.Cutting distributor commissions and removing select funds from banking platforms to discourage flows might be another industry first. Are intermediaries sympathetic to the reasons behind this?We have taken this step in three out of our nine equity funds. All existing commissions in those three funds remain intact. In accordance to our intention to bring down inflows, this action was taken for future inflows only. We continue our stance on raising a red flag when inflows start growing to unreasonable levels. A mid-cap or focussed portfolio comes with their own limitations. Hence one has to be more careful when building such funds. These are fairly young funds but recent inflows have at times exceeded 10% of their respective AUM.I am very happy with the feedback of our partners. They have appreciated this step and recognised the need for it. They saw the consistency in our thoughts and action. It just shows the maturity of mutual fund distributors in India at this moment. Yes, we did face questions but at the end of the day, we are thankful that our partners understood our point of view and stood by us.Despite being a consistent outperformer among active funds, your recent thrust towards passive strategies sends a message. Is Mirae throwing its weight behind the passive space?We have our product basket of active funds, both equity and debt, which continue to build good track record. That is the core of our business and will continue to remain so. At the same time, there is tremendous opportunity and potential of building meaningful products on the passive side. It is a very interesting situation as both can co-exist meaningfully—probably unique only to India at this time. The demography of the country is changing and so will the needs or investment habits of Indians.Also read: Int'l funds should be routine choice: ViewOur job is to provide strong products to investors across asset classes and strategies. Post categorisation of schemes, the number as well as the scope of products stand defined on the active side. There is a big potential to build innovative products catering to different risk profiles on the passive side. We have demonstrated that with two of our recent offerings—the ESG and the FANG+—both firsts in the industry. We want to establish ourselves as a holistic asset manager in the coming times.Some argue that large flows towards passive funds distorts efficient pricing of stocks. What is your take?We have seen in the years when there has been increase in inflows towards passive funds, trading volume has gone up considerably in the broader market which leads to better price discovery for such stocks. In fact a March 2019 paper published by Vanguard pointed out that despite its popularity, indexing plays a relatively small role in the price discovery process. This is because most indexing strategies have low turnover and indexing represents less than 5% of overall US trading volume. It pointed out that price discovery is driven by active market participants such as active managers, high-frequency traders, hedge funds, and individual investors.In India, the share of passive investment has just started rising and it is nowhere close to developed markets like US. So I don’t think inflow from passive funds can distort efficient pricing of Indian stocks. However, in a very short-term period there might be some price inefficiency due to funds flowing towards passive.Will more passive flows iron out niggles around high tracking difference and impact costs?Yes, more inflow means more traction and higher competitiveness among AMCs.This will eventually result in better operational aspects of ETFs such as lower tracking error, tracking difference etc. Further, it will also lead to focus on the market-making aspect of ETFs.For your first international offering, why restrict to the FANG plus basket?The NYSE FANG + ETF FoF is our first international offering in a decade. What appealed to us was the simplicity and the power behind the product at a construct level. Ten of the largest companies in the disruptive tech space, equally weighted (10% allocation per stock) which will be quarterly rebalanced. The scope, size and the growth of these companies does make a case for ownership in one’s portfolio. Yes, one has to keep in mind the concentration risk of the portfolio being restricted to 10 stocks. We thought this would be a unique portfolio for Indian investors. We are working on some interesting ideas in the global investing space. We do believe that the time has come for Indian investors to start looking at investing outside the country for its well spelt out advantages.

from Economic Times https://ift.tt/3xJDbpx