Best mid- and small-cap mutual fund managers 2021

Best mid- and small-cap mutual fund managers 2021

Even the most seasoned professionals at asset management companies don’t profess to make sense of what has transpired in the past 18-odd months. However, these equity market mavens have drawn on years of experience and kept calm in the face of the storm. In this year’s ET Wealth-Morningstar Fund Manager Rankings, we shine the spotlight on a few battle-hardened commanders who have skillfully negotiated the onslaught. These individuals rank among the top money managers for helping investors build wealth with a firm eye on risk. Our study looks at the five-year track record of equity schemes and identifies the best performers across three distinct categories on the basis of risk-adjusted returns.

A closer look at the handiwork of these achievers reveals a few common threads. Sticking to core investing philosophy at all times comes front and center for generating sustainable long-term wealth. Many have also placed firm emphasis on limiting drawdowns rather than chasing immediate glory by riding momentum. At the same time, some have acknowledged changing circumstances and showed a willingness to adapt to new realities with deft realignments. Read on to know how the gatekeepers at mass-market equity funds have managed to grow the wealth pie for investors through the market ups and downs.

Also Read: Best equity mutual fund managers 2021: Ranking by ET-Wealth-Morningstar

1. Shreyash Devalkar

Shreyash Devalkar, Axis Mutual Fund

Age: 42 Years

Education: Bachelor in Chemical Engineering & Masters in Management Studies.

Experience: 16 years
5-Year asset weighted return: 19.9%

Average 5-year AUM: Rs 3,464 cr

Risk adjusted returns: 0.96

Fund managed: Axis Midcap

AUM (Rs Cr): 13,834

Annualised returns (%)

  • 3-Year: 21.07
  • 5-Year: 19.35

Profile

Shreyash Devalkar scours the mid-cap arena with a strict quality-biased lens. Making a clear distinction between growth and sustainability has provided the basis for his stock selection over the years. Like in his large-cap offering, Devalkar has realigned his mid-cap portfolio towards B2B companies to suit the post-pandemic realities. Further, as more businesses started participating in the earnings uptick, Devalkar expanded the portfolio from 35-40 stocks to around 55. His broader preference within the midcap space remains for businesses that either have leadership position within a niche area or challenge bigger rivals in a larger arena. Devalkar is very particular about gauging the execution capabilities of the company management—a critical aspect for scaling up midsized businesses. His ability to deftly negotiate risk in this segment is visible in the fund’s superior downside protection in the past.

Quick take

My reading of the market

The mid-cap segment has done extremely well over the past one year. Export-oriented sectors such as IT and chemicals have particularly done well. Bottom-up stories also emerged from the unorganized to organized shift, changing dynamics in global supply chains, and increasing focus on cash flow and profitability by managements during pandemic. Valuations of mid-cap stocks are rich though.

How my fund is positioned

We are positive on opportunities in sectors such as IT, consumer durables, industrial consumables, cement, chemicals and clean energy.

Top sector bets and top stock picks

01 Top Bets

Also Read: Best large cap mutual fund managers 2021

2. R. Srinivasan

R. Srinivasan

Age: 50 Years

Education: M.Com & MFM

Experience: 28 years

5-Year asset weighted return: 22.0%

Average 5-year AUM: Rs 2,563 cr

Risk adjusted returns: 0.82

Fund managed: SBI Small Cap Fund

AUM (Rs Cr): 9,620

Annualised returns (%)

  • 3-Year: 21.57
  • 5-Year: 21.96

Profile

Amid market excesses in the high-risk small-cap space, R. Srinivasan makes sure to exercise abundant caution. He has insisted on protecting the drawdown rather than try to deliver high excess return. He is quite comfortable underperforming in phases when valuations turn unreasonable. As part of this strategy, he has spread out the portfolio to soften the fund’s risk profile. He prefers companies with some competitive advantage, scalability, better cash conversion and longevity. He also seeks higher margin of safety, which he reckons is critical in this segment. This has ensured a healthy risk-return profile. Always wary of heavy inflows into this space, the fund has intermittently gated flows to maintain portfolio quality and liquidity. Guided by a firm bottom-up stock selection approach, Srinivasan has stuck to his convictions throughout the market ups and downs.

Quick take

My reading of the market

A lot of the underperformance in the small-cap segment has gotten corrected during this market rally. Incremental outperformance will be a function of the overall bullish or bearish trend in the markets.

How my fund is positioned

While the fund did very well on absolute returns thanks to the market rally, it has lagged the benchmark on a relative basis. We are not chasing returns and our focus will be to reduce drawdowns to the extent possible. In this regard, liquidity rather the lack of it remains a challenge. As always, the fund is focused on bottom up ideas with a long term perspective.

Top sector bets and top stock picks

02 Top Bets

Also Read: Best multi-cap mutual fund managers 2021

3. Anupam Tiwari

Anupam Tiwari

Age: 43 Years

Education: Chartered Accountant

Experience: 13 years

5-Year asset weighted return: 18.8%

Average 5-year AUM: Rs 1,407 cr

Risk adjusted returns: 0.74

Fund managed: Axis Small Cap Fund

AUM (Rs Cr): 6,785

Annualised returns (%)

  • 3-Year: 27.07
  • 5-Year: 20.75

Profile

Not one to shy from taking cash calls, Anupam Tiwari was sitting on 15% cash in Axis Small Cap at the time of the market crash last year. He used the opportunity to quickly deploy in both existing and new names. He has continued to own businesses showing sharp earnings upgrade backed by competent management with a clean governance track record. Given the inherent volatility in the small-cap space, Tiwari prefers to run a low-beta portfolio. Rather than chasing momentum and getting carried away by shortterm outperformance, he insists the long-term game is more suited to this segment. Acknowledging that smallcaps are prone to shorter cycles, he prefers to go through intermittent periods of pain and stick to conviction bets as long as the problem is not structural. This approach has held the fund in good stead amid sharp market oscillations.

Quick take

My reading of the market

Reading of the market There could be near term volatility in the small-cap space given fast run up in stock prices in recent past. However, from a long-term perspective we are very positive on the space given the structural changes happening in the segment with respect to access to talent, access to capital and expanding market opportunities. For any investor who can bear short-term volatility and remain invested for next 5-8 years, this is a very good space to create wealth.

How my fund is positioned

We believe in buying good scalable businesses run by good managements with a track record of good execution and governance. We believe in bottom-up stock picking and hence have decent distribution in our portfolio from the chemicals, IT, cement and cyclicals sectors.

Top sector bets and top stock picks

03 Top Bets

Also Read: Mutual fund managers who have delivered good risk-adjusted return over the long run

4. Harshad Patwardhan

Harshad Patwardhan

Age: 51 Years

Education: B.Tech. (IIT), MBA (IIM) and a CFA qualification

Experience: 26 years

5-Year asset weighted return: 18.9%

Average 5-year AUM: Rs 1,019 cr

Risk adjusted returns: 0.71

Fund managed: Edelweiss Mid Cap

AUM (Rs Cr): 1,600

Annualised returns (%)

3-Year: 19.21

5-Year: 17.91

Fund managed: Edelweiss Small Cap

AUM (Rs Cr): 1,028

Profile

As the clouds started gathering early last year, Harshad Patwardhan leaned on his experience of the 2008 financial crisis. As circumstances change, one needs to adapt quickly to realities. While primarily relying on a bottom-up approach to stock selection, he reckons it is critical to have an overlay of a broader, top-down framework in times like these. This involves identifying and slotting businesses into three distinct buckets—fragile, resilient and beneficiaries. When the market crashed last year, he quickly deployed this framework. It helped the fund cut vulnerable stocks. It hiked presence in the other two buckets. The resolve to stick to the fund mandate, however, remained firm. The fund didn’t wade into cash or seek cover in large-cap names. Diversification is another pillar Patwardhan firmly rests on when playing in an arena prone to accidents.

Quick take

My reading of the market

In the long term, a good mid- and small-cap portfolio outperforms a good large-cap portfolio. After underperforming large-caps in 2018 and 2019, the mid- and small-cap segments have outperformed in the past 15-18 months. We expect broad based recovery and improved participation of non-institutional investors to help continue the long-term trend of mid & small-cap outperformance. However, in this segment, investors should expect higher volatility.

How my fund is positioned

We believe economic activity bottomed out last year and will continue its upturn over the next several years. Our portfolio is therefore leveraged to the economic upcycle. We are overweight on cement, industrials and real estate sectors. On a relative basis, we are underweight on consumer staples, domestic pharma and auto sectors.

Top sector bets and top stock picks

04 Top Bets

5. Pankaj Tibrewal

Pankaj Tibrewal



Age: 42 Years

Education: Commerce from St. Xavier’s College, Kolkata and holds a Master’s degree in Finance from Manchester University.

Experience: 18 years

5-Year asset weighted return: 18.1%

Average 5-year AUM: Rs 5,931 cr

Risk adjusted returns: 0.67

Fund managed: Kotak Small Cap

AUM (Rs Cr): 5,349

Annualised returns (%)

  • 3-Year: 26.00
  • 5-Year: 19.84

Fund managed: Kotak Emerging Equity

AUM (Rs Cr): 15,193

Annualised returns (%)

  • 3-Year: 19.81
  • 5-Year: 17.42

Profile

Even as the mid- and small-cap arena has seen lofty highs and deep lows in recent years, Pankaj Tibrewal has strived to maintain equanimity in all phases. The key to thrive across market cycles is to stick diligently to the chosen framework and not deviate from the basic philosophy, he insists. This also goes a long way in skirting landmines— an aspect he puts a lot of emphasis on. Amid the current rally in the broader market, Tibrewal has not hesitated in taking money off the table in stocks pricing in very high expectations. At the same time, he has stayed put in companies on the right track. The easy money is firmly behind us, he believes, and emphasizes on not getting carried away by the momentum. He has preferred businesses with a quality franchise boasting pricing power and management integrity, supplemented with a strict focus on maintaining portfolio liquidity and diversification.

Quick take

My reading of the market

Valuations of broader markets are no longer cheap and the risk reward doesn’t seem to be favourable in the near term. Though the valuations have still not reached 2017 extremes, but near term consolidation/drawdowns cannot be ruled out. Investors should moderate their expectations and invest only with a long term view.

How my fund is positioned

The fund is well diversified and holds sector leaders with strong balance sheet and cash flows. We believe the big will become bigger and strong will be stronger. The manufacturing and capex cycle will revive, along with the residential real estate sector. Also, digitalisation will be in focus.

Top sector bets and top stock picks

05 Top Bets

(Source: Mornigstar India)

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