Know Your Fund Manager: Sankaran Naren of ICICI Pru MF

Imagine you are on a flight, and suddenly, the plane hits turbulence. If you’re not familiar with flying and don’t understand why turbulence occurs, you might panic, thinking the plane is in serious trouble. But if you know that turbulence is common and that airplanes are designed to withstand it, you’re more likely to stay calm.

Why am I saying all this now?

If you invest in a fund following a certain style and don’t know when that style works and when it doesn’t, your decisions will most likely be impacted by panic and fear when there is a downfall.

This is why we started the Know Your Fund Manager series: to delve into the minds of the individuals managing your money.

For the third episode in this series, we interacted with one of the oldest fund managers in India—Sankaran Naren, the chief investment officer at ICICI Pru Mutual Fund, which manages more than Rs 7 lakh crore as of March 2024. In it, we discuss Sankaran’s personal journey, the impact of Mark Sellers’ speech, the fund house’s contrarian approach to markets, how the internal support system helps during underperformance, and much more. 

Naren oversees all equity, debt, and hybrid schemes at the fund house as a CIO, but he also directly manages about 13 funds as a co-fund manager. The prominent ones are ICICI Pru India Opportunities Fund, Value Discovery Fund, Balanced Advantage, and Multi-Asset Fund.

Watch the full video here –

https://youtu.be/34V3jDDFL00?si=NsCcoPTKAij1UdfR

Excerpts-

Cycle thinking: Naren and his team look at markets and sectors in cycles. Their investment approach revolves around the belief that whenever something goes way up, it falls down and vice versa. But unfortunately, Indian markets haven’t experienced many cycles. Hence, they look at cycles in sectors and take advantage of such cycles by investing in them when they are cheap and selling when things look hunky dory. This is the crux of ICICI Pru MF’s investment philosophy.

Structural style of investing: Naren has mentioned in the past that structural investing is not his strength. This style of investing involves investing in good companies that benefit from structural changes within the industry for the long term. For example, tech companies like Google, Amazon, and Facebook prospered due to significant structural changes in the tech sector. The idea is to invest in such companies and hold onto them long-term to create wealth.

Since cycle thinking is ingrained in Naren’s investment style, he admits that he may not be adept at identifying those structural changes. He acknowledges that because he is not strong in structural investing, he relies heavily on his contrarian skills to remain competitive.

Temperament: Naren believes that success in investing cannot be achieved solely by working with people who have the highest IQ. Having the right temperament is also a crucial factor. In this context, Naren shared an episode where the fund house had to endure a “heart-wrenching” process of losing money in the initial years of buying metal stocks, despite their excellent performance in later years. He confidently asserts that holding on to such stocks was possible only with the right support system within the organization.

Naren as CIO: The role of a chief investment officer is not easy; it is very demanding. While Naren is directly involved in the investments of the Value Discovery and India Opportunities funds, he says that his team handles most of the work for almost all other funds. Although the other fund managers at ICICI Pru have their own unique styles of managing funds, they all adhere to the cycle thinking process that Naren advocates. A pertinent point, as shared by Naren, is that none of the fund managers come from outside the organization; the entire team consists of in-house talent groomed under Naren’s mentorship.

Investing gurus: In this episode, Naren shared that his investing gurus are James Montier, Michael Mauboussin, and Howard Marks. Their teachings have greatly influenced Naren’s investment style. For instance, his approach to cycle thinking is inspired by Howard Marks’ book on the same topic.

I hope you enjoy the conversation as much as I did. I also look forward to talking to other fund managers and sharing what I learn with you all.