GEM GAZE

October 2012

Sector funds have earned an average return of 11% since their inception. The average return would have been 13% since inception, had you invested in diversified equity funds. But if you are intent on buying a sector fund, which ones should you look at and which are the ones to avoid? The October 2012 GEMGAZE provides the answer.

In view of the prolonged lackluster performance, Reliance Diversified Power Sector Fund has been shown the door. Rest of the funds in the October 2011 GEMGAZE have retained their preeminent position as GEMs in the October 2012 GEMGAZE.

ICICI Prudential Infrastructure Fund Gem

Long-term potential

ICICI Prudential Infrastructure is the largest fund in the infrastructure category, at Rs. 1879 crores. For a sectoral fund, the fund is well diversified with nearly 46 stocks and 75% of the portfolio is large-cap oriented. Moreover, there is lower concentration risk as it is a thematic fund. The top three sectors finance, energy, and metals account for 66% of the portfolio. The top three holdings alone account for nearly 21% of the fund’s portfolio and ICICI Bank is the fund’s top holding with a weightage of 7.77%. In the past one year, the fund has earned a return of 11.29% as against the category average of 9.96%. The expense ratio is 1.84% and the turnover ratio is 24%. ICICI Prudential Infrastructure Fund is the best performing infrastructure fund despite the lacklustre performance of this sector in the past year. This laggard performance is actually an investment opportunity in disguise for the long-term investor since the infrastructure sector holds potential to generate long term returns for the patient investor as infrastructure projects have long gestation periods.

 

Magnum FMCG Fund Gem

On a fast track

In the past one year, the Rs 108 crore Magnum FMCG Fund is perched at the top and its AUM has almost doubled from Rs 56 crore last year. There are 18 stocks in the portfolio and 53% of the assets are in large caps. Owing to its small size, the fund could stay with a compact portfolio of under 20 stocks through the year, an advantage given the limited universe of FMCG stocks. The one-year return of the fund is 47.26% as against the category average of 42.56%. Over the three and five year periods, the fund posted 40.21% and 22.23% of CAGR, respectively. And for the same time frame, the key benchmark indices Sensex and Nifty gained 5.3% and 5.09% respectively, while the BSE FMCG and CNX FMCG gained 30.29% and 29.61%, respectively for the same period. The expense ratio is 2.47% and the portfolio turnover ratio is 94%. Most FMCG stocks have proved to be more than just defensive bets over the last two years. They remained steady through the worst phase of inflation, when cost pressures increased, margins plunged, and demand shrunk. The FMCG industry trends continue to be positive and earnings growth is likely to be strong in the near term as well.

Reliance Banking Fund Gem

Beating the benchmark

Reliance Banking Fund invests predominantly in large and midcap financial companies. 57% of the portfolio consists of large caps. There are 18 stocks in the portfolio. Reliance Banking Fund has not only outperformed its benchmark, the CNX Bank Index but has also outperformed other banking sector funds. The current AUM of the fund is Rs 1729 crores and the one-year return is 30.10% as against the category average return of 27.43%. Reliance Banking Fund delivered 20% and 23% annualised returns over three-year and five-year periods, a good 4.8 percentage points and 7.5 percentage points higher than its benchmark. While 70% of the benchmark Bank Nifty's weight is split between ICICI Bank, HDFC Bank, and SBI, Reliance Banking Fund’s portfolio is well diversified with no stock accounting for more than 15% of the portfolio. The fund, however, has high exposure to public sector banks, which may result in short-term underperformance given the lingering concerns. Mid-cap banks and NBFCs, though, helped it outperform its benchmark consistently in the last one-and-a half-years. The fund outperformed its benchmark 87% of the time over the last four years, on a rolling return basis. The expense ratio is 1.93% and the portfolio turnover ratio is 68%.

Reliance Pharma Fund Gem

Consistent outperformer

This Rs 635 crore fund typically has a portfolio of 20 stocks and often takes concentrated bets. Like other pharma funds, this fund also took off as a large-cap, but gradually shifted towards mid-cap stocks. Its interest in small-cap stocks has also increased over time. At present, 42% of the assets are in large caps. Its one-year return is 19.77% as against the category average of 21.71%. The Reliance Pharma Fund has been outperforming its peers since its inception. This shows the quality of stocks that the fund has got in its portfolio. As on May 8, 2012, the fund has a five-year CAGR return of 21.66%, which came in above that of its benchmark returns, which delivered 12.73% over the same period of time. The expense ratio is 2.22% and the portfolio turnover ratio is 31%.

ICICI Prudential Technology Fund Gem

Old is gold

One of the oldest funds in this category, this fund returned 28.13% in the past one year as against the category average return of 16.42%. Currently around 91% of the Rs 108 crore corpus is invested in the technology sector, with Infosys alone accounting for 34% of the portfolio. The portfolio is highly concentrated with just 10 stocks. But 61% of the portfolio is large cap-oriented. The expense ratio is 2.49% and the portfolio turnover ratio is 28%.