Mumbai: IDFC Asset Management Company (AMC) announced the launch of an open-ended equity fund, predominantly investing in small cap stocks, – IDFC Emerging Businesses Fund. The new fund seeks to look at Growth opportunities in the Small Cap space alongside applying quality filters. Further, the fund is mandated to invest at least 65% in Small Cap segment. IDFC Emerging Businesses Fund will contain buy and hold strategies as well as opportunistic picks in the cyclical space. The fund will also look to participate in new businesses via IPOs. The fund will be managed by Mr. Anoop Bhaskar, Head – Equity, IDFC AMC.
Highlighting why now is the right time to invest in a Small Cap Fund, Anoop Bhaskar, Head – Equity, IDFC AMC, said that, “While not all the companies in the Small Cap space would move up the market cap curve, we believe it is important that we are cognizant of the market phase (pricing/valuation) when we enter into this space. The three main reasons to consider investing in Small Caps now are based on these factors - Price, Valuation and Volumes. Small Caps have witnessed significant price correction since the beginning of January 2018, the underperformance is a whopping 46% vs, Large Cap, as on December 2019. Small Caps are trading well below its average discount with the Small Cap Positive PE at 14.8 versus 5-year average 17.4. Additionally, Small Cap PE is now trading at a discount of 34% to its Large Cap counterpart versus average discount of 15%. Finally, when we compare the volumes in the Small Cap segment, a bear market typically witnesses a 65-70% fall in volume from its peak, post which the turnaround begins. The current cycle has already seen volumes fall by 66% from its early 2018 peak.”
The New Fund Offer will open from Monday, February 03, 2020 to Monday, February 17, 2020, during which, Units will be offered at Rs. 10 each and continuous offer for Units at NAV based price. The Scheme will re-open for ongoing subscription and redemption within five business days from the date of allotment of units at NAV based prices.
Small Cap investing is typically meant for a seasoned investor or those investors with high-risk appetite. While Small Caps do provide opportunities to generate reasonable outperformance, one needs to be aware of large drawdowns, liquidity issues and governance issues. To counter these risks, the fund will have a diversified portfolio approach with a 65-100% exposure in Small Caps and remaining in other equities. The fund will seek to steer clear from a concentrated portfolio – with higher number of shares (>30-35) and lower allocation towards top 10 stocks (<45%), gradually scaling up positions in Small Caps. A truly diversified portfolio, one that is not concentrated, will also help reduce impact of incidents that may occur due to possible governance issues that are likely in the Small Cap space.