All About Whiteoak Capital's Special Opportunities Fund
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00:00 Hello and welcome. You are watching the Mutual Funds Show on NDTV Profit and I am your host
00:13 Samina Nalwala. As always, the show aims to bring you actionable insights from the mutual
00:18 fund industry so you can make smart choices when it comes to your investments. Today on
00:23 the show we have with us Manoj Chendi, Co-head Product Strategy of Y2 Capital AMC. Manoj,
00:30 thank you very much for joining us in the studios today. I believe you have recently
00:34 launched a Special Opportunities Fund. The NFO opened on the 15th May and closes on the
00:42 29th May. You want to tell our viewers everything about the Special Opportunities Fund before
00:46 we dwell more into it? Sure. First of all, thank you so much for inviting me. So this
00:51 is an open-ended equity mutual fund scheme, actively managed. We are basically looking
00:56 for opportunities created by some unique events, commonly referred to as special situations.
01:03 Because of these events, sometimes stocks are trading below their intrinsic value or
01:08 called fair value. These events can be positive events or can be negative events. Sometimes
01:14 markets react, markets do overreaction to some negative event because of which ideally
01:19 stock price should be corrected by let's say 10% but is down by let's say 20%. So it creates
01:24 an opportunity for active fund managers like us that we take advantage of this mispricing.
01:29 Sometimes there is some positive news created by some event. We will discuss about those
01:33 events as well. But the market is pessimistic and they underreact to that positive development
01:39 and maybe stock should be up by 100% but it is up by let's say 20-30%. Again it creates
01:44 an opportunity because the intrinsic price or intrinsic value of that stock has went
01:48 up after this positive development but the market is not appreciating that good news.
01:53 So again we will be looking for these opportunities. Some of the examples of these special situations
02:00 can be let's say regulatory actions, policy actions, it can be corporate restructuring
02:06 like de-listing, de-merger, etc, spin-off. It can be geopolitical events, it can be disruption
02:13 by new technology, etc. So we will be looking for these opportunities.
02:18 So just to break this down so we understand special opportunities, situations or special
02:24 situations better. Assuming there is an event and the reaction is far worse than expected
02:32 or the impact it is going to have on the company's operations. How long before you actually say
02:39 that you know what, well I have taken that stand, gone out and bought the stock because
02:43 it is a special situation but you may not have seen a recovery come through. So how
02:48 much time do you have an investment or a stock either on the upside or the downside?
02:53 So yeah good question. First of all there are a set of companies which we will avoid
02:58 because there are certain companies which will always be in a special situation. So
03:02 they are cheap for now and they will become cheaper next year. So we have a list of companies
03:08 which we are comfortable with. If any of these companies are facing some special situation
03:12 because of which stock price has corrected significantly, we may or may not wait to enter.
03:18 Sometimes you will see that market will start appreciating that company price should be
03:23 on the higher side maybe in three months, sometimes six months, that we don't know.
03:26 But if we find that the prices are available at a steep discount and we have a strong reason
03:33 to believe that the problem is temporarily and it can be solved very easily by the management,
03:37 we will jump on to opportunities.
03:39 Now Manoj this is a very interesting strategy because I am assuming if this is based on
03:44 special situation, very rarely can you predict a special situation. Usually negative, if
03:49 it is regulatory driven, it is very tough to call these things and hence you see the
03:53 kind of reaction that you see on some of these counters. What is the process of identifying
03:59 one a special situation? Is it more at a macro level or a micro level in terms of stocks?
04:04 And once identified, what is the approach? How do you put a stock on the radar because
04:10 you can't predict a special situation in that sense and hence it is special.
04:14 Yeah, that's true and we are not trying to predict the special situation themselves by
04:18 the way. We are just saying that after event taking place, we will analyze whether the
04:26 reaction by the market participants, is it overreaction or underreaction. Let me give
04:30 you for example, like few years back when government formally introduced PLI, Production
04:37 Link Incentive Plan. So that development was very positive for some of the manufacturing
04:42 sector companies, specifically those who already were doing very good job. So now in that situation
04:48 you can see that there are couple of players who are doing fantastic job, but market is
04:52 not appreciating this new development and they will be benefiting out of this new development
04:56 hugely. So you may decide to buy. Let me give you one more example. Recently when geopolitical
05:02 tension happened between Russia and Ukraine, suddenly the entire focus was shifted towards
05:08 domestic defense capability building. So that was very positive for domestic players in
05:14 the defense and aerospace business. Again, if you see that market is not giving enough
05:19 benefit to this new development, you may want to jump in this case.
05:27 Right. Manoj, you will walk me through the process of identifying these situations and
05:33 also what are the caveats that you want to give out to investors who are watching the
05:38 show trying to learn more about this one, the primary objective, the risk that one needs
05:42 to keep in mind as well.
05:44 So two, three things. First of all, we will be looking at these opportunities across sectors
05:50 and across market capitalization. So it is going to be a flexi-cap strategy at the heart
05:54 of it. But because of the fact that we are buying companies, mostly those stocks which
05:59 are contrary to market belief, you are not buying consensus stock, you are buying non-consensus
06:03 stock. That is the reason why they are trading below their intrinsic value. So that means
06:08 they will be tilted towards contrarian bet, which also means if you compare this portfolio
06:14 with any other traditional flexi-cap portfolio, the top ten holding of this flexi-cap strategy,
06:20 special decision category, will be very different than a traditional flexi-cap.
06:23 Okay, obviously.
06:24 Which further means that if you are buying a portfolio which has a very high active share
06:30 or basically how much portfolio is different from the benchmark. So here the portfolio
06:34 will be significantly different from the benchmark, which also means that on a day-to-day basis
06:39 any movement can be slightly different than the benchmark. So for first-time investors,
06:44 I still believe that categories like flexi-cap fund, large-cap fund, large and mid-cap funds
06:48 are the better category to start with. But anybody who already have investment in some
06:53 flexi-cap fund or large and mid-cap fund looking for add another flexi-cap mutual fund scheme,
06:58 I think these are the schemes which are in true sense provide diversification benefit
07:03 because in true sense you are buying another strategy which has a different portfolio altogether.
07:09 The caveat here is that not all special situations are special opportunities. So sometimes there
07:16 are reasons behind why the stock price is corrected and sometimes the business model
07:21 itself is shamed and you find that there are a lot of examples in India itself. So for
07:26 that you need expertise and at Ytalk as you know that we have a large investment team,
07:31 also we have in-house forensic capability also, we have a dedicated resource and the
07:35 whole job of that dedicated resource is to look for that flex. So we are not looking
07:41 for each and every special situation, we are looking only for opportunities created by
07:45 some of these special situations. So we may avoid many of these special situations, we
07:50 may not want to participate in each and every.
07:52 Would you be able to tell us what these situations currently are that you have identified that
07:56 make a good opportunity for investment? You don't need to talk to me about stocks but
08:00 any sort of themes or sectors that are currently picked up and identified by the team?
08:04 So for example, let me give you an example of special situation which is very recent.
08:10 Recently we have seen a regulator taking action on some financial institutions, financial
08:16 companies. So now in this environment where every month or so you are getting some news
08:22 talk in news in the financials, you may pick some stocks which you believe are great company.
08:28 The problem is that when you pick great company they are rarely cheap. So because of these
08:34 regulatory actions some of the great companies are available at a fair price or maybe below
08:39 their fair price, now it creates a lot of good opportunity for active managers like
08:43 us.
08:44 Okay, and what is the average number of stocks that you hold in this fund?
08:51 So we don't have any, I mean as you know it is an NFO and we don't have any number in
08:55 our mind. It all depends how much opportunities we are getting and so we don't want to put
09:01 any number to it but is it going to be a very very concentrated 20 stock portfolio? I don't
09:05 think so. That is what we are looking at. But obviously just to give you a reference,
09:13 is it fair to expect that from a typical traditional Flexicap mutual fund that we are also running,
09:20 you can expect on a longer period of time on an average the number of stocks will be
09:23 lesser than traditional Flexicap mutual fund. I think it is a right expectation to have.
09:29 So help me break this down and tell me if this is a fair understanding. Because it is
09:35 a niche sort of offering and there is not too much to compare it to in the market, would
09:41 it be a fair assumption that a fund such as this cannot be part of your core portfolio,
09:46 it should be part of a satellite portfolio, is that a fair way of reading it and if yes,
09:50 what percentage of one's equity active allocation could one consider investing in the YTOK or
09:57 Special Opportunities Fund? So first of all I will tell you this is a difficult category
10:03 and not everybody and anybody can launch a fund in this particular category because you
10:07 have to be constantly looking for opportunity across sectors and across market capitalization.
10:12 As I said we have a very large investment team, one of the largest in the industry.
10:17 So our investment universe is about 1000 companies. So I think we strongly believe that we have
10:23 the right capability to do justice to this category and hence I strongly believe that
10:28 not every mutual fund house will be able to not only launch product in this category and
10:34 to do justice to this category. To your second part of your question, I think as I said that
10:40 anybody who already have investing experience in equity mutual fund and looking to diversify
10:45 further. So if you are already a Flexicap Mutual Fund investor, you are buying another
10:50 Flexicap Mutual Fund and the overlap is about 90%. So you are just adding another scheme,
10:55 you are not diversifying your portfolio. And then you don't have a concentrated portfolio,
10:59 so you can't beat the market. Yeah, if you end up buying the market, you cannot beat
11:03 the market. So here in true sense you are diversifying your portfolio because the underlying
11:08 theme necessitate us to take contrarian bet because we will be buying companies which
11:12 are non-consensus, which are basically market have given up on those company for some reason.
11:18 Maybe they have good reason to believe and hence I think anybody and everybody who is
11:23 existing Flexicap, Multicap, Large and Mid Cap investor looking to add another scheme
11:28 in the equity space, I think this can provide a true diversification. So depending on their
11:33 or existing equity allocation, I mean the next allocation can go to this product and
11:38 as I said this should not be your first equity mutual fund scheme for lump sum. Maybe for
11:44 SIP you can still consider, but for first time investor I think Flexicap, Large and
11:48 Mid Cap, Large Cap product better. Better ways to learn in the market. Yeah, yeah. Right,
11:52 also in terms of and of course you can help me understand this, I haven't personally come
11:57 across many special opportunities fund. Are there other fund houses that have a similar
12:02 offering to yours? I think there are about at least four, I know four which are existing
12:06 in the market and I think along with us couple of more fund houses have filed with SEBI.
12:11 So you will see some action. Some more in the pipeline. Also given that this is relatively
12:16 higher risk in that sense, would it be a fair assumption to expect high returns and I know
12:21 there is no way to predict future returns, but and this is a qualitative answer I am
12:26 seeking because high risk should commensurate high returns. Sure, it is a thematic one whereby
12:32 at least 80% of the portfolio should be invested in special situation stocks. So to that sense
12:37 yes it you can if you have to compare it with the Flexicap strategy, so you can say the
12:41 alpha volatility will be higher as compared to Flexicap fund which is more balanced in
12:47 terms of various factors. So I want to believe that when you give freedom to a fund manager
12:54 and if you believe that the investment team is good, so that freedom, the investment team
13:00 can use that freedom to potentially generate more alpha, but because here you can deviate
13:07 too much from the benchmark, the volatility of alpha is something you have to be mindful
13:12 and hence you should be okay to see volatile alpha. Yes, swings, big swings. What is the
13:17 average recommended time horizon for one to stay invested in? Minimum five years that
13:22 should be your, when you are investing in a thematic fund, equity fund for example,
13:27 at least five years something you should have in your mind. And this is the theme that is
13:31 sector and timeline agnostic in some sense, right? So sector agnostic for sure. Sector
13:35 agnostic and market cap agnostic. Market cap agnostic. Right, I think we have covered everything.
13:40 Just a quick last question, you want to take us through who the fund managers are and if
13:43 they manage any of the funds in the fund house? Yes, so Dheeresh will be managing this fund
13:49 and Dheeresh is a very senior resource with us and he is managing a healthcare fund as
13:53 well. It's a thematic fund. Yes, and also he is a co-fund manager in many of our other
13:57 schemes as well, equity schemes. And ideal way of investing lump sum or SIP? It all depends
14:03 on your existing portfolio, risk appetite, investment horizon etc. Right, Manoj, thank
14:09 you and congratulations and also good luck with this NFO. Remember viewers if you are
14:14 interested and keen to invest in the YTOKE Special Opportunities Fund, the NFO is open
14:19 on the 15th of May and closes on the 29th May.
14:22 Today we are joined by Amit Kukreja, founder of amitkukreja.com. Hi Amit, it's Amina from
14:29 NDTV Profit. Hi Amina, how are you? I am very well, how are you? Good, good, thank you.
14:35 Amit, you know just before we came into this break, I was talking to Manoj of YTOKE Special
14:42 Opportunities Fund. It's a very interesting one. Assumption is it's high risk, high return,
14:48 high risk in nature. I want to get your view on this one. I also am aware that up until
14:54 recently YTOKE was very famous or popularly known for its PMS and EIF strategies. With
15:00 its venturing into the equity mutual fund space, this is of course the 11th NFO. What
15:07 do you make of it? Have you read about it, heard about it, talked about it? Would you
15:10 recommend this to your clients? So, I know about YTOKE products and I think they are
15:17 doing well. I am also aware how the leadership team is continuously working to add value
15:23 in their product space. This particular product that you were referring to is a special opportunity
15:29 product where I think there is a fair bit of value fund ideas which have been implemented
15:35 or which will be implemented to create alpha for the investors. Now, in terms of other
15:40 product space, I think they have delivered decent value in the last few years, in the
15:45 last 3 to 4 years ever since they started because their technical team is very strong.
15:50 There is a big team of investment analysts and the fund managers who have put together
15:55 a solid proposal who have a very good pedigree of having worked elsewhere. So, it's a good
16:01 leadership team and early stage but I am sure they are going to do well in this space.
16:08 Well, that we will have to wait and see but yes, it's a FlexiCap fund with a very interesting
16:14 proposition where they identify special situations and of course, then go out and buy the stock
16:19 in their portfolio. But like the fund manager explained to us, it's not for a retailish
16:25 new investor in that sense. But anyway Amit, let's move on and talk about our queries.
16:30 We have a query coming in from one of our viewers, Pranab Gupta. He is 62 years of age
16:38 and his goal is to create a corpus of 1 crore rupees. So, we have got a little bit of backward
16:43 math over here. His question is, I want to start an SIP of 3000 rupees each in 10 mutual
16:50 funds for the next 5 years. Can you recommend the necessary funds for my portfolio?
16:56 So first of all, I want to tone down his expectations. So, he is hoping that just by investing 3,60,000
17:08 in one year, which comes out to be 18 lakh in 5 years, he will reach the milestone of
17:14 1 crore in 5 years. 18 lakhs of investment through systematic monthly plan, turning into
17:21 a total accumulated value of 1 crore. That's absolutely impractical expectation just so
17:28 that he familiarizes himself with the reality. I was doing simple numbers for him. For a
17:35 growth of 8% per annum, given he is 62, I'm not sure about his risk profile, given he
17:42 is 62, if the portfolio is growing at a rate of 8% per annum, he'll be able to accumulate
17:47 about 22 lakhs. At 9%, he'll be able to accumulate anywhere between 22 and 23 lakhs. And at 12%
17:54 per annum, he'll be able to accumulate 24 lakhs. Anything more than that, obviously
17:58 accumulation is going to be going about 24, 26, 28. And just a 5-year horizon, with equity
18:05 investments, we always say keep a long-term horizon of 8+ years. I want to just comment
18:12 from a behavioral expectations aspect point of view. Because of the rally, because of
18:17 the bull market that we have seen in last year, year and a half, the sentiments have
18:22 suddenly turned towards quote unquote, greed or unrealistic expectations. So it's not going
18:28 to be easy for anybody to reach a mark of 1 crore, be it stocks or be it mutual funds.
18:35 If you have a knack for technical evaluation of a company of stocks or a group of stocks,
18:41 you can evaluate that. But I don't think it's possible to accumulate 1 crore with the total
18:45 net investment of 18 lakhs in 5 years.
18:48 Amit, well, it's all about power of compounding. And I think we are cognizant about that. But
18:55 yes, a 1 crore number with a 30,000 rupee monthly allocation is extremely far-fetched
19:00 in that sense. But if I have to work this backward, if we do, one way to do this is
19:06 of course increase your allocation monthly or alternatively reduce your goal. What I
19:13 also want to ask you is the way of investing, right? Do you think maybe making a little
19:17 bit of a lump sum investment could help him reach his goal earlier than it would if it
19:23 was just an SIP?
19:24 Yeah, I mean, I can simply run the figure.
19:28 Yeah, that'd be great actually.
19:31 Yeah, if I make an investment of 50 lakh rupees now growing at 12% per annum, it'll turn into
19:38 88 lakhs. If I make it 60 lakhs in 5 years, growing at 12%, it'll turn into a crore 5.
19:46 So if he has a lump sum of 60 lakhs ready, he can invest with an expectation of 12% per
19:51 annum. As I said, 5 years is too small a window. So 60 can turn into a crore plus in 5 years.
19:57 And if he's doing about 3.5 lakhs annually, which is about, you know, 3000 rupees across
20:04 each fund for the 10 years.
20:05 30,000 per month.
20:06 Where is he going to get to at the end of 5 years realistically?
20:10 Somewhere between 25 lakhs and 30 lakhs if the ROI is more than 14%.
20:16 And that is being realistic. So I think Pranav, that's most important. You've got to keep
20:21 the time horizon in mind. Asset allocation also is extremely critical. We have no idea
20:26 whether you have equity heavy or debt allocation in your portfolio. But keeping your age in
20:31 mind as well, you want to build a portfolio that has risk adjusted returns and the long
20:36 term returns on equity is 12%. So keep your expectations real. And of course, if you do
20:43 make that investment of 3000 rupees across 10 mutual funds every month, you will get
20:48 closer to 25 lakhs over a 5 year period. To hit about a crore in 1 year, you have to look
20:52 at about a 60-65 lakh rupee lump sum investment in the market, which we're not recommending,
20:58 but that's the goalpost if that's what you want, or rather the road to the goal that
21:03 you want.
21:04 Well, we have another query coming in now and this one is from Lakshmi Narayan. She's
21:09 42 years of age and her goal is 3 crore rupees. She hasn't mentioned the time horizon though.
21:17 She says, I've invested 4.3 lakh rupees lump sum in mutual funds, 13.3 lakh rupees in the
21:23 Sukanya Samrithi scheme, 3 lakhs in SGPs, 8 lakhs in fixed deposits, 2 lakhs in the
21:31 RBI floated bonds. Will these investments help me achieve my lump sum return goal? My
21:37 current mutual fund portfolio is as follows. HSBC small cap fund, Parag Parikh FlexiCap
21:44 fund, Canada Rebeco Blue Chip Equity fund, Motilal Oswal Large Cap fund, SBI Magnum Children
21:52 Benefit fund, and DSP Multi Cap fund, and the SBI Energy Opportunities fund. Amit, I
21:58 don't know about you, but I feel like she's got way too many funds on her portfolio and
22:02 they seem to be a little spread all over the place in that sense.
22:09 Yeah, so two comments. One, we don't know the horizon by when she wants to accumulate
22:14 3 crore. So it's very difficult for us to tell us whether she will be able to hit the
22:19 milestone or not. If she's 42 and if she's looking for achieving this figure in 18 years,
22:25 let's say until she turns 60. So I'm going to just do a simple math here and she's getting
22:34 18 years. You know, she would need an SIP of about 15,000 rupees a month if she has
22:49 a current value of 50 lakhs accumulated in 18 years to turn that purpose into 3 crores
22:56 with an aggregate rate of return of 12%. I don't know if that will help her. But in terms
23:02 of schemes, what Lakshmi needs is just one good flexi cap, one good mid cap, one multi
23:10 cap and a couple of index funds. Right now, she has a lot of mutual funds and I see there
23:17 are a couple of large caps, there are a couple of multi caps and thematic also. The list
23:21 should be reduced significantly to no more than six mutual funds. At least she can start
23:27 with stopping the SIPs. I'm not saying that she should redeem all but at least reduce
23:32 the SIPs to a smaller set of mutual fund schemes and make it at least 15 to 20,000 rupees per
23:39 month to achieve the target purpose of 3 crores in 18 years. That's assuming she wants it
23:45 all by 60. That's all I can comment. She's also got a significant amount of money in
23:54 the Sukanya Samriddhi scheme. She's got SGBs, which over the long term do pull out returns
24:00 of 12%. And she's got about 8 lakhs in fixed deposits and 2 lakhs in the RBI floated bond.
24:06 Would you recommend looking at maybe tax efficient, return efficient products instead of staying
24:13 with the conventional fixed deposits? It's a good query. It highlights why the financial
24:19 planning conversation needs to have a lot more details. The fact that she has a Sukanya
24:24 Samriddhi scheme is telling me that she has a girl child. She's trying to prepare for
24:28 funding and education. The fact that she has gold, naturally affinity for gold in women
24:33 and naturally she might be wanting it to be part of her retirement portfolio. The fact
24:38 that she's having RBI floating rate bond, which means she could be a homemaker or she
24:47 could, I don't know, because people who take RBI floating rate bonds are either senior
24:53 citizens or the ones who need passive income because they are exploring things in life.
24:58 They want to figure out what's their next. Maybe she's a very conservative investor.
25:02 We don't know. We are playing a guessing game here. At the same time, she's investing in
25:06 flexi cap and thematic and sectoral funds besides gold and mid cap funds. So we are
25:14 making too many assumptions about Lakshmi and there's a lot that she's trying to elicit
25:18 from us. We are happy to help, but had it been a little bit more specific in terms of
25:22 what is the mapping towards the goal and what is her investment objective and horizon, we
25:27 would have been a lot more helpful. You're right. I think their strategy is missing in
25:32 the portfolio. It looks like an amalgamation of products as opposed to products being invested
25:39 into for the long term, keeping the long term objective in mind. But of course, Lakshmi,
25:43 if you're seeking advice, you can, of course, connect with Amit and he can break that down
25:46 for you. But with that, we're completely out of time, Amit. Thank you very much for joining
25:50 us and thank you viewers for watching us. This is the end of the edition of Mutual Fund
25:56 Show.
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