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Manind Govil's first turnaround was his dad's portfolio. Govil was studying business as an undergraduate at the University of Bombay when his father handed over his faltering investments to his son to manage. It was an early indication that Govil possessed a knack for improving lagging portfolios.
As a professional, he did it first at the mediocre Mercantile Growth & Income Fund, leading the fund during his nine-year tenure as manager to above-average returns. He then took over the struggling RS Large Cap Alpha in August 2005 and has proceeded to trounce his large-blend rivals. The fund's three-year annualized return (through Dec. 31) is better than the returns of 98% of category peers. Over the same time span, the fund annually has returned 6.6 percentage points more than the S&P 500.
To achieve these results, Govil and his excellent analyst team search for undervalued companies with strong competitive advantages and steady earnings growth. To top it all off, Govil has proved his commitment to shareholders by investing more than $1 million of his own money in the fund.
Govil stopped by the Morningstar offices on Nov. 20 to answer our 10 Questions.
1. You haven't ignored financials in the portfolio, but you weren't burned by them. What led you away from the worst of the financial stocks?
Our due diligence told us that conditions were fundamentally deteriorating and that these factors weren't priced in. Some of these companies made what we thought were imprudent moves. Hence, we got out of them. We sold Countrywide in the first quarter of 2006. We sold AIG and Lehman Brothers in the second quarter of 2006. That's what investing is all about. You've got to continue your due diligence and watch your companies very carefully.
2. Has the crisis made you reconsider any aspects of your investment process?
It's actually reaffirmed our investment process. There's a saying, "When the tide goes down, that's when you know who's been swimming naked." It's sure been a time to get to know who's been swimming naked.
3. Where are you finding the most opportunities to invest?
You name the sector, and we can find competitively advantaged companies that are trading at good prices. It's a wonderful time.
4. What names in your portfolio are you most excited about?
Boeing BA, Enterprise Products Partners EPD, and MasterCard MA.
5. What in your portfolio has you most concerned?
AMR Corp. AMR and Western Union WU.
6. If you could have one do-over in 2008, what would it be?
Although the probability of a depression is very low, from the point of view of being conservative and doing scenario analysis, I wish we would have thought through more about how our companies would withstand a depression.
7. When you took over the fund three years ago, you revamped the analyst team. What qualities make up a good analyst?
Integrity, a track record, intellectual curiosity, flexibility, and humility.
8. Why did you make managing money your profession?
I love thinking through the competitive situation of a company--how it is going to change, how its competitors and customers are going to change--and then trying to value that information and determining if the company is mispriced. It's not about watching stock prices go up and down every day. It's about how things are going to play out in the long term.
9. What is the best book you've read the past year?
"The Wisdom of Crowds," by James Surowiecki.
10. The investing story of 2009 will be ...
Survival of the fittest. The prudent will eat the imprudent.
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