King of mid-caps, Kenneth Andrade, is back. His hunting ground: monopolies, cash flows, low valuations

When it comes to investing, Kenneth Andrade has always believed in investing in a concentrated portfolio of stocks for a long period.

“Our approach is to be early investors in a company’s growth cycle or investing in companies that are going through a downturn… buying from an industry that is losing money but the company is doing well,” the veteran investor explains.

Prior to launching Old Bridge Capital in 2015, which manages an AUM of over $80 billion now, Andrade was with Bandhan AMC (Formerly IDFC AMC).

Andrade, who is the founder-director of Old Bridge Capital Management, was talking to the media on the sidelines of the launch of Old Bridge Asset Management’s maiden new fund offer (NFO) – Old Bridge Capital Focused Equity Fund on January 10. The Open-ended Equity Scheme is a pure equity fund and will be open for  subscription from January 17, 2024, to January 19, 2024.

Also watch: Coffee Can Investing | Kenneth Andrade on how to spot great companies during a down cycle 

Focus on consolidating stocks

“The investment approach is not to break down the BSE 500 by sectors and align the portfolio to those sectors; instead, we identify stocks based on various criteria,” explains Andrade.

The first is to look for “monopolistic businesses” or “consolidating businesses”.

This includes companies that are gaining market share with no change in capital employed, companies with the lowest cost, or businesses that could end up as “leaders” at the end of the consolidation cycle.

Talking about the last, Andrade adds that when there is consolidation in an industry, the survivor usually ends up being the biggest player. “This has been seen across industries and at different times – from media to aviation and even the telecom segment,” says Andrade.

“For a company to be able to survive, it needs to have good leadership skills, understanding of how to navigate the cycle and a good balance sheet. That’s what we look for in a stock in the first cut,” he said.

The second criterion is capital efficient/cash flow-positive businesses. The third is companies with low debt, and, lastly, out-of-favour businesses with low valuation. While they are yet to finalise the companies or sectors they will be investing in, “fundamentally, we are aligned to which companies we will not invest in,” Andrade adds.

Philosophy based on track record

The philosophy of the fund is in line with Andrade’s style of investing that helped him outshine his peers as one of the best mid-cap fund managers during his tenure.

He managed the erstwhile IDFC Mutual Fund’s Premier Equity Fund (which he co-managed from 2005- 2015). The fund closed in 2018 with an AUM of Rs 5,300 crore and was re-launched in 2018 and is now known as Bandhan Multi Cap Fund, generating a 10-year return of 21 percent on a compounded basis, from 2005 to 2015 —  higher than the BSE 500 Index at that time.

Also read: Will maverick mid-cap fund manager Kenneth Andrade do an encore with Old Bridge MF?

Andrade believes in having limited stocks in his portfolio within the mid-cap space and waiting for them to grow. While Old Bridge AMC’s maiden fund will be market cap-agnostic, Andrade adds that the fund is likely to have a concentrated portfolio of mid-market stocks.

“That’s the investing style which has worked well for me, and that’s what we will be bringing into our maiden fund,” he says.

The house philosophy, he explains, has always been about buying into enduring businesses with emphasis on limiting capital losses through a buy-and- hold approach. “It’s about buying at the right time and price, and then waiting,” says Andrade. This philosophy, he says, helps build a margin of safety “to protect our portfolios.”

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