Gorilla investing and 34% return: How Mihir Vora made Trust Smallcap Fund top performer

The Trust Small Cap Fund has emerged as a top performer in its category, delivering a 34% return since its inception in November 2022. This performance significantly outpaces the 19.3% return from its benchmark, the Nifty Smallcap 250 Total Return Index, over the same period. The fund, which manages assets worth Rs 427 crore, credits its success to a distinct investment philosophy focused on identifying market leaders in specialized sectors.

The 'Gorilla' Investing Philosophy

At the core of the fund’s approach is what Chief Investment Officer Mihir Vora calls “Gorilla” investing. This strategy involves identifying and investing in companies that are dominant players, or “gorillas,” within their specific niche or industry segment. The focus is on businesses with strong balance sheets, high return on capital employed (ROCE), and capable management. Holdings such as Aether Industries in specialty chemicals and Kewal Kiran Clothing in apparel exemplify this approach.

A Dual-Pronged Portfolio Strategy

The fund’s portfolio is structured with a clear division between long-term and tactical holdings. Approximately 60% of the assets are allocated to a “Core” portfolio, comprising companies with sustained structural growth potential. The remaining 40% forms a “Tactical” portfolio, designed to capitalize on cyclical trends or special situations. This includes investments in areas like capital goods companies that stand to benefit from the ongoing capex cycle.

Disciplined Stock Selection

Underpinning the strategy is a proprietary five-point framework for stock selection known as TREAD. This model evaluates potential investments based on their terminal value, return on capital, earnings quality and management, discount to intrinsic value, and deliberate risk management. This disciplined process ensures that only companies meeting stringent quality and valuation criteria are included in the portfolio.

Market Implications and Outlook

The fund's early success highlights the potential for active management strategies that concentrate on quality and market leadership within the volatile small-cap space. By focusing on established niche leaders, the strategy aims to capture high growth while mitigating some of the risks associated with smaller, less-established companies. However, the concentration in specific niches also presents a risk if those sectors face headwinds. The fund's ability to sustain its outperformance will be a key test of the “Gorilla” strategy's long-term viability as its asset base grows.