One other aspect of aum size (or winners curse) is that – the part of economic cycle we are in. When economic cycle is strong – like now – lot of sectors are participating and earnings growth is visible across the spectrum. Most of these sectors like manufacturing, power ancillaries, capital good ancillaries have many small mid cap companies as India has not done well historically in these areas. Therefore in strong economic cycle, if you have strong research team then aum size does not matter at all. Harsh tweeted some days back nippon amc outsources research part, that means they can practically research each and every small cap company. This argument can also be supported by, looking at Nippon’s small cap fund which is top performing fund across time periods and which also happens to have the largest aum size in the category
Nippon small cap
AUM size – 26,000 cr
Last 3 year return cagr – 48.5%
Last 1 year return cagr – 33.2%
Number of stocks – 172 ( i am not kidding and no wonder they outsource research )
But when economy growth will slow down in future, size will feel the pinch as few companies will have good earnings growth and thats why portfolio having companies across broader spectrum will suffer. But if we are optimist on India’s future – then essentially we are gunning for broad growth and thats why aum size constraint is less relevant
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