Invesco India Smallcap Fund Beats Benchmark with 8% Return

Aditya Khemani, Head of Equity at Invesco Mutual Fund, delivered an impressive 8% return for his small-cap fund over the past two years. This significantly outpaced the small-cap benchmark, which saw a 1.5% decline during the same period.

Key Performance Metrics

• Fund Return (Past Two Years): 8%
• Small-Cap Benchmark Return (Past Two Years): -1.5%
• Market Cap Reduction Threshold: Below Rs 7,000-8,000 crore
• Largest Single Holding Cap: Around 5%
• Minimum Holding for Meaningful Impact: 1.5%

Khemani attributes this strong performance to several strategic decisions. His approach prioritizes a high-quality portfolio while actively managing exposure to specific market segments.

Strategic Pillars of Success

• Maintaining a high-quality portfolio consistently.
• Purposefully reducing exposure to stocks with market caps below Rs 7,000-8,000 crore.
• Avoiding overheated sectors, such as industrials, when valuations became excessive.

Contrary to the common belief that higher risk always equates to higher returns in small-cap investing, Khemani emphasizes that risk management is paramount. His strategy challenges conventional wisdom by focusing on disciplined selection.

Sectoral Focus and Portfolio Allocation

The fund employs a non-traditional, bottom-up stock-picking approach, concentrating on specific sectors. This targeted allocation helps manage volatility and capture growth opportunities.

• Preferred Sectors: Financials, Consumption, Healthcare (with a preference for services like hospitals and CDMOs), and Industrials.
• Underweight Position: Highly cyclical sectors like Materials due to their volatile earnings.

Khemani’s position-sizing strategy further underlines his risk-conscious methodology. He implements strict caps and minimums to ensure portfolio stability and impactful holdings.

Rigorous Position Sizing and Selection

When evaluating potential investments, Khemani prioritizes the intrinsic quality of the business and its management. He looks beyond short-term earnings forecasts or one-year forward P/E ratios.

• Largest single holding capped at approximately 5%.
• Minimum holding of 1.5% for meaningful impact within the portfolio.
• Prefers “small fish in a large pond” with significant growth potential.
• Seeks companies led by strong professional management.

This analytical framework suggests that sustained outperformance in the small-cap segment is achievable through stringent quality filters and proactive risk mitigation. Khemani’s strategy offers a blueprint for navigating a notoriously volatile market.