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L&T Flexicap Fund Growth
 
Morningstar's Take
|12/04/2021
by Kavitha Krishnan

L&T Flexicap was managed by erstwhile head of equities Soumendra Nath Lahiri until his departure in December 2019. The fund has since been managed by the duo of Venugopal Mangat (head of equities) and Vihang Naik (fund manager). The experience they bring to the table is crucial, especially as the departure of Lahiri has led to significant changes in the way the fund is currently managed. We are wary of the recent changes in the team and think it prudent to maintain a Morningstar Analyst Rating of Neutral across all share classes.The investment process aims to find companies based on in-depth research and uses bottom-up stock-picking. While Lahiri followed a benchmark-agnostic, high-conviction strategy approach to investing, the current managers follow clearly articulated processes that leads to a benchmark-aware approach to investing. They now refer to the benchmark and use internal metrics to ensure that there are no major over- or underweightings.The duo prefers running portfolios of 50-60 stocks and mitigates concentration risk by maintaining a maximum individual stock exposure of about 6%-7% in the portfolio. The managers focus on identifying companies with high-quality management and growth rates that exceed the industry average over the long term. The idea is to identify and invest in companies that allocate capital rationally and generate a high ROCE at reasonable valuations. The managers look at the competitive structure of the industry, barriers to entry, regulatory environment, and growth opportunities for the company within the sector while scouting for opportunities. Having said that, some benchmark names carry a prominent place in the portfolio. We think the process and investment style tie in together very well. The process aims to invest in a diversified portfolio and mitigate risks at a portfolio level. Given this approach, liquidity is monitored closely at a portfolio level.In our opinion, the processes at the fund house have been structured in line with their goals. The managers bring a lot of structure and discipline to the process by ensuring that the core philosophy of the fund remains consistent despite a recent change in the fund’s Morningstar Category. Having said that, we are wary of the recent team changes.

Morningstar Analyst Rating™
Neutral
Portfolio Role
The fund’s large-cap bias makes it a suitable long-term core holding in an investor’s portfolio.
Executive Summary
People: Vihang Naik and Venugopal Manghat make a good team,but the position of CIO equities remains unfilled.
Parent: L&T Asset Management Company is a fund house that has grown through acquisitions.
Process: The focus is on companies that are long-term growth stories and efficient at capital allocation.
Performance: The fund’s performance has remained strictly average in comparison with its peers.