Big investors Are Frustrated With China, Indian Markets Beating Warren Buffet Consistently: Samir Arora
The Singapore-based fund manager Samir Arora is best known for his India-focused hedge fund Helios Capital. A true research analyst at heart, Global investors swear by Arora's uncanny skills at stock picking and identifying new-age companies that are ripe for a long rally. He had relocated to Mumbai in 1993 from New York, at the peak of the Harshad Mehta bull run, and played a lead role in setting up the Mutual Funds (MF) business for Alliance Capital. Then, Alliance Capital's India-dedicated MF managed by Arora won 15 awards. After he moved to Singapore, he was also voted as the most astute equity investor in a poll conducted by The Asset magazine in 2002. His Helios Strategic Fund was consistently nominated in the category of Best India Fund by Eurekehedge between 2006 to 2020 and won four times. It also won the AsiaHedge Award 2018 for long-term (five years) performance.
The growing might of the domestic investors versus the foreign players has yet again forced Arora to return to Mumbai. Helios MF is launching its first Flexi-cap scheme on Monday. Why Flexi-cap? True to Arora's investing style, the fund can buy stocks across the spectrum: small-cap, mid-cap and large-cap companies. In an interview with Palak Shah, Arora shares insights on how Helio MF will continue to beat the streets.
Are you late in entering the mutual funds industry? What's new that Helios has to offer to the investors?
In the US there are several hundred mutual funds, but India still has only 50. We are not late in entering the MF industry at all. Helios is not a new company and has 18-plus years of experience, a relatively unique and robust investment process with a long history of delivering consistent performance. Also, in any particular product category, there are perhaps 5 successful and well-performing schemes. Our competition is with 5 to 7 MFs and not with the entire industry or every scheme.
As a hedge fund manager in Singapore, your favourite strategy was the 'long and short' game to maximize investor returns. Comparatively, MFs is a vanilla play and you cannot go short. How will you generate the 'Alpha' for the aspirational investors?
At Helios, we focus on what not to buy. Our strategy is to eliminate stocks where we cannot invest and this is based on eight factors or themes: industry dynamics, management quality, valuation etc. We weed out companies, which could be bad investments based on such themes. Even if a single criteria in our list does not match the benchmarks we have set, the stock is not an investment bet for us. After eliminating the bad apples, we arrive at a list of best buys. Removing poor companies from the list may not mean all the time that we have found the best investment play, but that is risk management. As an MF, we want to ensure that we do not invest in bad companies and our portfolio is of generally good companies. Although, it's rare that all the investments are good and may match all the eight factors.
The difference between Helios and others is that most others will buy 'quality' companies even though they are expensive or buy companies that are cheaply available, even though they are poorly managed. In our parameters, there is something called 'veto,' which means we simply reject the stock if the company management is bad. A filter like this to remove the bad apples has reduced the margin for errors, thereby bringing down the cost and upping the consistency in returns for Helios.
Has Helios put up a new structure and team for the MF play?
In the scheme of things at Helios MF, I'll be the founder and sponsor of the fund and the chairman of the Asset Management Company. The senior management team will consist of those who have worked with me in Singapore for nearly 18 years. For instance, Helios MF CIO (Chief Investment Officer) is Alok Bahl, my second in command at Singapore. Credit for the long and consistent track record of Helios also goes to him. Abhay Modi, our head of research at Helios has been affiliated with Helios for more than 16 years now.
To start with, Helios is first launching a 'Flexi Cap Fund' (which can invest in companies across the spectrum i.e. large-cap, mid-cap, and small-cap stocks). Over the next 18 to 24 months, we will perhaps do 4 or 5 schemes. Beyond that, we are still strategizing and will cross the bridge when it comes. One thing is for sure: Helios will be an actively managed fund.
Do you think MF investors miss out on the full rally of stocks since they have to keep selling the stock as its m-cap rises to balance the portfolio weightage as per regulatory requirements? Is this a lacuna or a bane for MF investors?
This is not correct at all. MFs are allowed to have 10 per cent weight in any stock and that is sufficient for 99 per cent of the stocks that anybody may want to hold. It is very rare that one or two stocks start witnessing a dream run and not owning them to the maximum extent starts affecting the entire portfolio.
MFs often face the two horns of a dilemma: they can't exit fully in times of bubble or even in an impending bear market like 2008. The maximum cash that MFs can sit on is 10 to 15 per cent in any scenario. What are the options for investors here?
It has been our experience that it is never easy to take those calls to sit on high cash levels - they do not aid too much on the performance. Not just MFs, it is equally difficult for investors to take such a call to fully exit the markets. Ultimately everything in the markets is relative performance. The big picture is that it pays to remain invested in the markets for a longer time and sometimes being fully on cash may also hurt badly. Who could have imagined that best returns were made by investing after demonetization and that the Ukraine/Russia war will not hurt the markets?
Currently, India is the only best economy with a high rate of growth in the world. Have we reached a point where India will do well, irrespective of problems in any other part of the world?
On a scale of the last five to twenty five years, India has consistently been the top performing market in the world in US Dollar terms. Over the last 25 years, the Indian markets have beaten Warren Buffett's returns (in US$ terms). I therefore suggest to the big investors that instead of going to Omaha every summer (to meet Buffet), they should go to Mumbai and take a selfie outside the NSE or BSE building. Big investors are frustrated with China (since the markets have not delivered high returns for several years now) and this will lead to consistent and increased inflows to India.
Are new age companies the only big bet?
Many new age companies are a worthy investment. But so are several of the old economy companies. The ratio of new age and emerging companies is never fixed in investing.
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