When I was young I would chase companies that would give me a good dividend yield – and it was much later – that I realized that it was called ‘value investing’!

Having said that how would you do asset allocation if you were a value investor? would it be different? what if some of your value picks got popular and created a ‘momentum’ in your ‘value’ portfolio? When I look at the value part of the Icici prudential value discovery fund…i get confused.

So I decided to look at the ONLY fund in India which is ALWAYS true to label. That fund is the Templeton Value Fund. I consider banking to be highly valued. I do have Hdfc bank., Kotak, Chola….etc. in my portfolio. In a value fund should I expect to see a Bfsi company at all? Not sure. How much weightage, if at all?

In this Templeton fund I found about 40% of BFSI – including small ones like Equitas. I always thought Biocon was a growth kind of pricing.

However the portfolio taught me one thing. It reminded me that a good value manager will know from where the VALUE will be unlocked. So clearly Hdfc bank’s value has to come from growth (pe expansion is not possible I presume). For Equitas the value unlock has to come from market penetration, and improvement in CASA. For Icici bank, the value unlock has to come from expansion in pe – as the quality of the balance sheet improves.

So what I want from a good value manager is to know from where the value will be unlocked. I expect a value fund manager to be smart enough to know when the value unlock has happened, and the fund should exit that share. I guess both the Value discovery fund and Templeton value fund are good funds. In my life I really use them as contra. However I have lotsa Sun Pharma bought recently and so does the I Pru value discovery fund. Other than that I like the Value discovery fund.

Now let us come to asset allocation. When markets are high, should you allocate MORE to debt funds or shift from so called “growth” stocks in your equity portfolio and shift to value funds?

I seriously do not know. However I am sure that this is NOT A MARKET for us to evaluate a VALUE FUND. It is not a market where you can see how their performance is. This is a time to stick around with value buys…and the value will be unlocked in a DOWN MARKET…or the wealth preservation will be better.

I do think that people who are investing in mutual funds should IGNORE this post. It is the fund manager’s job to do asset allocation. However if you have a lump sum to invest you should look at growth, value, etc. In fact over the last few months my best investment has been in dollar denominated asset. This was not a good fund till about 18 months ago….but in the last few months it has been a rock star. Frankly the amount is so small that it makes no change in my life – it is just a kick that I got the Re-dollar movement right.

Go, have fun.

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