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In this section, we explain SUN F&C 's investment philosophy. It is this philosophy which guides the day-to-day investment management in all its schemes. The equity investment philosophy guides investment decisions in the Value Fund and the equity portion of the Balanced Fund, while the debt investment philosophy guides investment decisions in the Money Value Fund and the debt portion of the Monthly Income Plan.
Before explaining the SUN F&C 's investment philosophy, we have explained some common investment styles and investment approaches. Investment philosophy consists of two elements
Investment Approach & Investment Style. To know some of the common terms used by
various fund managers while describing investment philosophies, you can click here.
Typically there are two common approaches used by fund managers for their investment philosophy:
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Top-down Approach |
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The Top-down approach focuses on key macro economic indicators and trends, followed by a study of individual sectors in the economy to form an outlook on their future prospects. Through this process, business opportunities in different sectors are identified and accordingly the best stocks within the identified sectors are selected for investment. Hence, "attractive" industries are identified first and then "attractive" stocks are identified within those industries. |
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Bottom-up Approach |
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This approach focuses on identifying individual high-performing companies with outstanding management whose business is growing faster than any of its peers within or outside their industry. |
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The common styles used by fund managers for their investment philosophy are:
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Value Investing |
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Fund managers employing the value approach look for companies trading at a discount to their intrinsic worth. Simply put, these companies are quoting at a price earnings (P/E) multiple lower than what it should be considering the fundamental strength of these companies based on their management, industry outlook and balance sheet indicators. Hence, there exists a potential for the P/E of these companies being adjusted upwards over time as the markets realize their intrinsic worth. Such a change in P/E is also called re-rating of the stock.
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Growth Investing |
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Growth involves investing in stocks of companies whose businesses are expected to show healthy growth in future earnings. Here, the company's price will move up not because the P/E will improve (no re-rating), but because the EPS will go up. This is because,the price of a share is a function of the P/E multiplied by the EPS.
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Momentum Investing |
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Fund managers using momentum investing use technical indicators to buy low and sell high in the short run. This means that they do not rely on indicators such as P/E or EPS but take buy/sell decisions purely on price movements of that share, however good or bad the company may be. This approach is commonly used for stocks that are highly volatile and where profit opportunities exist in short term trading of these stocks. |
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It may also be worth explaining here the difference between investment philosophy and investment objective, since these two terms are often used and are confusing to most investors. While investment objective is usually associated with a particular scheme and defines where investments should be made. For example, the investment objective of the SUN F&C Value Fund is to generate long-term capital growth from a portfolio substantially consisting of equity & equity related securities. On the other hand, investment philosophy defines how investment decisions should be made, i.e. the Value Fund is guided by the philosophy of value oriented investing. This long term style of investing tries to locate, in a disciplined manner, shares, which for a variety of reasons, are selling at prices which are lower than the company's actual business value or future earnings potential.
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