Mirae Asset AMC is a perfect example of how AMC’s take investors for a ride for commercial reasons and then why SEBI has to do what it does.
Over last 2 years Mirae Asset has changed positioning of its two flagship funds and has left its investors confused. While they would have their own correct reasons and logic for these changes, as an keen observer, for me these changes were just for commercial reasons completely ignoring investors interest.
Two SEBI regulations that made their way – Scheme categorisation and change in expense ratio, has key role to play in these abnormal changes in the fund categories in last two years.
The journey from Largecap to Mutlicap to Largecap:
Mirae Asset India Equity Fund – now Mirae Asset Largecap Fund was a largecap oriented fund since its inception. It always held more than 75% of its portfolio into largecap stocks. The fund size in 2017 was around 3,000 cr. and was rapidly increasing on the back of strong performance. In 2018 to comply with SEBI’s scheme categorisation the AMC positioned this Fund under the multicap category as this category had no constrain and was flexible enough to accommodate rising AUM size while keeping its alpha generating ability intact. After this change the AMC consistently communicated that the Fund will not change its strategy and will maintain the largecap tilt. If this was true, then why the fund was positioned in multicap category at first place? The largecap category was a perfect fit if the fund had to continue its old avatar.
The fund probably changed the category to multicap as this category was getting huge flows and was a mainstream category which the AMC would not want to miss. The performance of the fund was looking great in the multicap category. This helped the fund to increase its AUM from 3,000 cr in 2017 to 11,000 cr. in 2019.
Twist in the tale.. The AMC again changed the fund category back to largecap recently. This time the reasons which they gave were even surprising. They said people believed that the fund is largecap and there was confusion and hence, we changed it to largecap. But then people believed it was largecap back then in 2018 also. Then why it was changed to multicap.
The reason lies in change in expense ratio. SEBI has cut expense ratios for larger AUM funds and this affects its distribution ability. Mirae Asset was 11,000 cr fund which was hampering its ability to pay higher brokerage and incremental flows could have been tough and given multicap is a mainstream category AMC didn’t want to loose flows in this category. Apparently the AMC resorted to a smart strategy, they changed this fund to largecap category and launched a new Multi-cap Fund with the same fund managers managing it. Now this small sized fund shall have ability to pay high brokerage and open up new flows. The management team has been saying that they have not launched Multicap fund but a focused fund, this argument is just too immature. SEBI would never allow an AMC to change the category (From multicap to largecap) and launch a new fund in the same category (Multicap) simultaneously. Hence, multicap fund was launched in focused category and not the other way round.
However, they never thought of investors who came in the fund when it was multicap – almost 5,000 cr rise in AUM during its tenure as a multicap fund. Not fair deal to these investors. But who cares?
Midcap to Large & Midcap Fund with Midcap focus changing to largecap focus:
Mirae Asset Emerging Bluechip Equity Fund was a midcap oriented fund since its inception. It always held more than 75% exposure into midcaps. In 2018 to comply with SEBI’s scheme categorisation the AMC repositioned this fund into Large & Midcap Fund category. This came as a surprise and many people questioned the move. The AMC consistently communicated that the fund will remain midcap and will continue to invest 75% in midcaps and only small percentage will be invested in largecaps. So there is no change in strategy for existing investors and they should not worry. If this was true , then why the fund was positioned in Large & Midcap category? The midcap category was a perfect fit if the fund had to continue as a midcap fund.
The fund probably changed its category due to size issue. Managing a 5,000 cr. fund in midcap category is not easy and can affect its performance. Secondly, placing a midcap fund against large & midcap fund will make this fund shine out bright against peers as its past performance was way above pure play large & midcap fund.
Twist in the tale… the fund changed its mandate midway and started diluting from its midcap mandate. Investors who signed up for midcap fund are now into large & Midcap fund with just 40% in midcaps and 53% in largecaps. No reasons given for this change.
The reason for these changes lies in size of the fund and expense ratio. Since the size has become huge fund had to dilute its pure play midcap positioning and with increase in size it will also have less flexibility in paying brokerages. Hence, a smart strategy was devised – launch a new midcap fund. Forget old investors who signed up for midcap fund who you kept saying that the fund will be midcap fund even when it is changed to Large & Midcap Fund category. Most funniest part of this is Mirae Emerging Bluechip Equity Fund is closed for subscription as there are no enough investing opportunities and now a midcap fund is being launched which will suddenly have opportunities which didn’t exist for Emerging Bluechip Fund.
There are so many investors who have their long term SIPs in both these funds and they are left confused with frequent changing stance of the AMC and their false communication to their investors, more so in Emerging Bluechip Equity Fund.
In my view the AMC has played a smart game at the cost of investors trust and has betrayed them. While they may have number of arguments to counter, the truth is they have done these changes in commercial interest alone.
I would recommend investors to take a wise and informed call on continuing their investments in these funds. While you may continue to stay invested, align your portfolio strategy accordingly. Treat Mirae Asset Emerging Bluechip as Large & Midcap fund and not midcap – If you want a midcap fund exit and look for a better fund. Treat Mirae Asset Largcap Fund as largecap and not multicap, and if it doesn’t fit your objective then got for a better muticap fund.
While both these funds have performed extremely well it is important to not ignore these changes as it may have an impact on future performance of your portfolio. While there is nothing wrong in launching new funds, but then launching it by shifting same category fund into new category and then launching a new fund is not justified.
Some excerpts from interviews in the past which shows how the schemes were positioned:
Value research interview in Feb 2019:
What is your investment universe?
Mirae Asset Emerging Bluechip Fund is our flagship scheme in the mid-cap space, which has completed seven and half years. As per the offer document, the mandate is to invest minimum 65 per cent in mid and small sized companies, i.e., companies which are not part of top 100 companies by market capitalisation. Our definition of mid-cap is companies which are not part of top 100 by market value. The fund has leeway to invest up to 35 per cent in top 100 companies. On the lower size, while the universe is quite wide, we prefer companies which generate operating profits of around Rs 100 crore. In this context, we try to avoid tiny businesses, i.e., micro-caps.
Value Research interview in 2015: https://www.valueresearchonline.com/story/h2_storyView.asp?str=28062
Yes, the investment approach remains the same, even though the products are different. The Mirae Asset India Opportunities fund has a large-cap orientation, with at least 75 per cent invested there. On the other hand, the Mirae Asset Emerging Bluechip fund is mid-cap oriented.