Blending Value and Quant: Insights from PPFAS Mutual Fund’s Rukun Tarachandani

Radhakrishnan Chonat, in another Fund Manager Series episode of AlphaStreet, begins the interview with an overview of Rukun Tarachandani’s impressive career, tracing his journey from an Equity Research Analyst at Goldman Sachs to his current role as a Domestic Equity Fund Manager at PPFAS Mutual Fund. His experience spans working at Kotak Mahindra Asset Management and managing their equity arbitrage fund. He shared how his investment philosophy was shaped by behavioral finance and value investing, concepts introduced during his MBA days at MDI Gurgaon by Professor Sanjay Bakshi.

Despite understanding behavioral biases through extensive reading, he acknowledged that practical application during market highs and lows remains challenging. Tarachandani emphasized the integration of quant models, leveraging his IT background, to aid in decision-making and mitigate biases. This transition to fund management at PPFAS involved a holistic view of portfolio management, considering diverse macroeconomic conditions.

Balancing Long-Term Value Investing and Quantitative Models : In this segment, Tarachandani discussed the perceived myth of a single quant investing framework, highlighting that quant models at PPFAS are designed for long-term investments. These models act as the initial filter to identify potential stocks and risks, complementing fundamental analysis. By objectively evaluating stocks, the models help overcome biases, ensuring that investment decisions are based on data rather than past experiences. This approach allows PPFAS to blend quant-driven insights with thorough research, maintaining a disciplined yet flexible investment strategy.

Maintaining a Significant Cash Reserve Amid Market Euphoria: Rukun addresses the rationale behind PPFAS Mutual Fund’s substantial cash reserve, despite the market hitting all-time highs. He clarifies that the high cash position results from a lack of attractive opportunities rather than a deliberate strategy to hold cash. He expresses caution about current market valuations, noting that many companies are trading at high multiples on cyclically high margins, which poses risks if economic conditions shift.

Sectoral Convictions and Strategic Exits : The conversation shifts to PPFAS’s sectoral preferences and strategic decisions. Rukun shares insights into their bullish stance on private sector banks and the financialization of savings, driven by structural trends and reasonable valuations. Conversely, he explains their cautious approach to consumer staples and discretionary sectors, where high valuations are difficult to justify in a rising interest rate environment.

Navigating International Exposure Constraints : Addressing the impact of RBI’s $7 billion cap on international investments, Tarachandani clarified that PPFAS has not reduced its holdings but cannot increase them due to regulatory constraints. He remains confident in the long-term trends supporting their international portfolio, such as digital advertising and cloud computing. Domestically, the performance of PPFAS’s Tax Saver Fund demonstrates strong capabilities in identifying local investment opportunities, reinforcing a balanced global strategy.

Technological Transformation in Asset Management : Reflecting on his IT background, Rukun highlights the technological advancements that have revolutionized asset management. From the availability of comprehensive historical data to the development of sophisticated models, technology has significantly enhanced research and decision-making processes. He emphasizes the continuous evolution of tools and techniques that keep pushing the industry forward.

Nuggets of Wisdom: Key Quotes:

“Human decision making is impacted by behavioral biases.”
“Value investing appealed to me as an investment thought process.”
“Using quantitative models as an aid in decision making is a major change.”
“Cash is a residual position that comes from our bottom-up stock picking.”
“Valuations on average are expensive, limiting the opportunity set.”
“Private sector banks are well placed with good asset quality and reasonable valuations.”
“The financialization of savings presents long-term growth opportunities.”
“Consumer staples and discretionary sectors’ valuations are difficult to justify.”
“International exposure is limited by regulatory caps, not strategic choice.”
“Technology has increased data availability for asset management.”
“Read up a lot, start from the first principles.”
“Quantitative value and momentum offer a good flavor of quant investing.”
“Market randomness requires appreciation to navigate investing successfully.”
“I read books across genres to relax and take my mind off markets.”

Key Takeaways and Reflections : Rukun Tarachandani’s insights offer a profound understanding of the delicate balance between traditional investment philosophies and modern quantitative methods. His emphasis on maintaining objectivity, managing risks prudently, and leveraging technology underscores the dynamic nature of fund management. Aspiring investors and professionals can draw valuable lessons from his experience, particularly the importance of adapting to changing market conditions while staying true to core investment principles.