During the 2010s, Bangladesh’s stock market bear decade, mutual fund operator VIPB Asset Management generated huge returns for its clients, contrary to thousands of stories of painful capital erosion.
NLI First Mutual Fund, managed by VIPB, over its ten-year life to February this year, beat the industry and the market with compound annual returns (CAGR) of 14.01%, while that the annualized price return of the general index of the Dhaka Stock Exchange (DSE) was only 4.93%.
VIPB’s Southeast Bank First Mutual fund, which was delisted and converted to an open-end fund in May 2021, has returned CAGR of 13.03% over its 10-year lifespan versus annualized return 1.32% of the broad index during the corresponding period.
Managing Director and Chief Executive Officer (CEO) of the champion asset management firm, Shahidul Islam, said in a recent interview with The Business Standard that ignoring short-term market fluctuations while taking a long term in the stocks of well-governed companies that enjoy a competitive advantage has been his secret to investment success.
“Our investment philosophy is long-term value investing. It’s not about buying a stock just because its price is expected to rise in the short term. Instead, we’re buying part of a company worth owning for a long time,” said Shahidul, who is also a Chartered Financial Analyst and Global Certified Financial Risk Manager.
Intrinsic value is the key, which the market often ignores, he said while explaining the importance of finding the deserving price of a stock based on the company’s ability and potential to create long-term value.
He looks for the strength of the company’s management, the reputation of its brand, its distribution network, the honesty of the management and the reliability of the financial statements, and above all the long-term orientation of the company’s business strategy. ‘company.
“As believers in the long-term potential of Bangladesh’s economy, we only select companies that are expected to maintain long-term growth in line with the country’s economy,” he said, adding that the short-term underperformance of the good stocks in his portfolio is never frustrating. because he feels no pressure to outperform the market in any particular quarter or year, not even over a series of years.
“We are constantly monitoring things to make sure that the thesis on which our long-term expectations were built still holds up or not.”
Answering a question which is more important – find the right company or buy its shares at a cheaper price, Shahidul Islam informed that he focuses on analyzing fundamental factors to identify good companies rather than forecasting. stock prices.
“Of course you need a margin of safety,” he said of the importance of buying good stocks at low prices.
Pharmaceutical giants Square, Renata, major telecom operator Grameenphone, leading paint maker Berger and Brac Bank are the top holdings of funds managed by VIPB. In addition, VIPB funds hold shares of some other industry champions like hair care giant Marico, multinational footwear company Bata.
Islam believes that continuing short-term market rallies that are not backed by long-term fundamentals only satisfies its gambling instincts, not the goal of sustainable wealth creation.
Joining the market move if the rally is not supported by fundamentals can be very risky, he believes.
He believes the success of the value investing approach would be repeated over the next decade and beyond.
“As the country and its economy matures, retail investors will avoid their business mentality and focus on long-term investments,” he said.
He further said that the current economic and business crisis may create difficulties in the short term, but there should be reversals soon and people will forget about these bad times.
“If the Bangladesh Bank eases the lending rate ceiling, there might be a trend of interest rates going up, but I don’t think lending rates will hit previous highs like 16%-17%” , he said, adding that the world with aging population and their growing savings rate should not experience the high interest rates seen in the 1980s.
“Current market volatilities are good opportunities to pick good stocks for long-term holding,” Shahidul Islam said.