Translating Fund Manager-Speak to English

Having read through hundreds of fund manager interviews (no boast here, I've lost hours of my life that I'll never get back), I have devised three rules of decoding them into plain English.

Before I get to them, let me give you a bit of background. Mutual Fund Managers are not inherently complicated people. Nor are they ardent fans of Shashi Tharoor. However their jobs are such that they simply don't have the freedom to be clear, categorical and blunt. They have to mask what they really think in jargon, diplomatic finesse and linguistic acrobatics to keep their all-powerful legal, compliance and public relations teams happy.

The basic reason for their cryptic language is that fund houses (called AMCs) run funds in all categories - large caps, mid caps, small caps, hybrid, debt (long term and short term) etc. As a result, fund managers cannot say outright that 'I think small-caps are overvalued. Avoid.' Instead they will say something like 'small caps valuations may look stretched from a forward earnings point of view but this can be justified if you look at the scenario of rural consumption and government spending growth in the next 4-5 quarters.' This type of statement sometimes becomes the interview headline, leaving you scratching your head - did he say small caps are overvalued or not??

Fear not. The following three rules of thumb should help you decipher what they are saying. Hopefully.

Expressio Unius est Exclusio Alterius (Express mention of one thing, is the exclusion of the other)

This Latin expression means that saying one thing explicitly, implicitly excludes the thing not mentioned. When a fund manager says, 'liquid funds are giving attractive yields in this rising interest rate scenario', he is also saying something else. He is in effect saying, 'stay away from income funds.' Liquid funds and income funds cannot both do well in a rising rates situation but the manager cannot say 'exit income funds' because, among other reasons, his fund house is likely to be running an income fund as well as a liquid fund. It is as simple as that.

A Diplomat never offends

Fund managers cannot say much about investing without inadvertently hurting some other scheme or strategy of their fund house, or stepping on the toes of a CEO or CFO. As a result their opinions and convictions are couched in painfully concealed language. They will say something like the 'real estate sector is facing the headwinds of demonetisation, RERA and slow pace of construction' when they actually mean 'stay away from real estate companies, guys.'

Macro-economics is a great filler

Fund managers often do not have that much to say and what they are allowed to say is anyway highly constrained. So they stick to the financial counterpart of the 'how is the weather today' conversation. That counterpart is macroeconomics. A great many interviews of equity fund managers are copy past versions of 'economic reforms. government spending and growth in consumption.' To this fund managers will add the existing menu of government schemes on offer. A few years ago this might have been MNREGA and the food security programme. Now it is Jan Dhan, rural electrification and Pradhan Mantri Awas Yojana (PMAY). In most (though not all) cases, your best option is to move right along to the the more interesting bits.

These rules are by no means absolute. Some interviews are remarkably clearly and concise, so give them a fair chance. And above all else, enjoy reading between the lines!