Monday, September 14, 2015


September 2015

If mutual funds are the best vehicle for small investors to invest in stocks, diversified equity funds are, by far, the most cost-efficient. A large-cap fund with a good track record should be part of every investor's core portfolio. If you want to be more aggressive, opt for a mid-cap fund, though these can be riskier than the large-cap ones. You could also go for multi-cap funds, which invest in a mix of small-, mid- and large-cap stocks. For those with a lower risk appetite, an index fund is a better option. Such funds invest in stocks of the index they track and, hence, their returns are not very different from those of the index. However, these are not as spectacular as those churned out by diversified equity funds. In the past five years, the average diversified equity fund has outperformed the broader market by 4-5%. But this is the average return, and some funds have also underperformed. This is why choosing a good equity fund is important. GEMGAZE aids you in this choice. All the five GEMs of the 2014 GEMGAZE have qualified yet again for the 2015 GEMGAZE.

HDFC Equity Fund Gem

The largest fund from the HDFC stable, with assets in excess of Rs 17,168 crore, the two decade old HDFC Equity topped the performance chart over the three- and five-year time frames. The one-year return of the fund is -4.24% as against the category average of 5.15%. The top three sectors of the fund are finance, technology, and automobile. The fund holds 59 stocks in its portfolio and is adequately diversified with 38.29% of assets in the top 5 stocks. The fund’s expense ratio of 2.17% is much lower than the average of other funds in the large cap category. The portfolio turnover of this predominantly large cap fund, with 75% of the assets in large caps, is a mere 39%. HDFC Equity Fund easily ranks among the best funds in the large-cap category in India. It benefits from the presence of Prashant Jain, who has demonstrated considerable skill in navigating the fund through varying market conditions over the years. Research is central to his investment style. A long-term orientation is intrinsic to the approach. Jain therefore invests in companies he believes are well positioned for long-term growth, even if that entails enduring short-term pain. His willingness to back his conviction with divergent bets versus the index and the norm is not without risk. Likewise, in a downturn, Jain’s policy of staying fully invested may lead to underperformance versus peers that get their cash calls right.  If you are looking for a predominantly large-cap fund with some mid-cap stocks thrown in, this is the fund for you as it has lower volatility. The fund remains a compelling choice for investors. 

Sundaram Select Midcap Fund Gem 

The dwindling asset base of Sundaram Select Midcap Fund was arrested with assets rising from Rs 1,963 crore in 2014 to Rs. 3212 crore in 2015. Krishna Kumar took over the reins of this fund after the former fund manager Satish Ramanathan’s exit in December 2012. Krishna Kumar is a proficient manager in the small- and mid-cap space. His investment style entails investing in fundamentally sound stocks with good growth prospects, good pricing power, and stable cash flow. Krishna Kumar is valuation conscious while investing in stocks but is willing to stay invested in companies with higher valuations in which the longer-term growth prospects appear favourable. The investment style is essentially bottom-up with a buy and hold philosophy on high conviction names. Such an investment approach requires an in-depth understanding of companies. It is here that Krishna Kumar’s background in researching small- and mid-cap stocks helps. A seven-member research team supports Krishna Kumar in this endeavour. The fund has outperformed its benchmark, S&P BSE Mid-Cap Index consistently. It has delivered a return of 16.08% (BSE mid-cap - 13.43%) and 29.51% (BSE mid-cap - 21.94%) over one and three years. It currently has 64 stocks with financial services, engineering, and automobiles being the top three sector holdings. These three sectors constitute 47.7% of the portfolio. The top five stocks constitute 22.72% of the portfolio. The expense ratio of the fund is on the higher side at 2.29% while the portfolio turnover is a measly 20%.

ICICI Prudential Dynamic Fund Gem

ICICI Prudential Dynamic Plan is suitable for investors looking for high capital appreciation over a long term, with limited downside potential in volatile markets. The fund managed a good 27% annual return since its launch in October 2002, way ahead of the 14.4% return of its benchmark S&P Nifty. This outperformance is noteworthy as the fund, quite often, shifted a good chunk of its assets to debt when equity valuations seemed high. Although an equity fund, ICICI Prudential Dynamic’s mandate allows it to move even 100% of its assets into debt or cash or hedge the portfolio using derivatives. The fund takes this call based on market valuations. This is not a fund for return chasers. The manager’s philosophy is to ensure the fund performs better than peers when markets fall, even if the strategy hurts performance in rising markets, thereby ensuring a robust performance over a market cycle. Though the fund can invest across market capitalisations, it puts 70-75% of its portfolio into large-cap stocks. In its debt portfolio, the fund has usually invested in fixed deposits, other short-term debt instruments or held cash. But, during 2014, the fund latched onto sovereign debt, given their sharp rally, putting around 10-15% of the portfolio into G-secs. The fund’s approach both shields it during market slides and allows gains in bull runs. In the one, three, and five-year time frames, the fund’s return of 20.1%, 23.6%, and 14.5% are better than the Nifty by four to five percentage points. The one year return of the fund is -4.22% as against the category average of 5.15%. The top three sectors are finance, energy, and technology. There are 62 stocks in the portfolio with 33.55% of the assets in the top five stocks. While the expense ratio of the fund is 2.26%, the portfolio turnover ratio is 124%.

DSP Blackrock Equity Fund Gem

The Rs 2425 crore DSP Blackrock Equity Fund, which has been in existence for more than 18 years, has outperformed its benchmark, the CNX 500, over one-, three- and five-year timeframes. Over the last three years, it has delivered compounded annual returns of 18.48%, which is better than several peers in the category. The fund has given good returns in market rallies and also limited the downsides during market declines. Over long periods, the blend of large- and mid-caps tends to deliver category-beating returns. It has delivered compounded annual returns of nearly 17% over the past 10 years, which is among the best in its category. DSPBR Equity invests predominantly in large-cap stocks while mid-cap exposure is to the tune of nearly 36% of its portfolio. While the focus on large-cap stocks protects the fund in volatile markets, the mid-cap portion ensures a fair degree of outperformance for it. It seeks to reduce the risk profile significantly by taking low exposure to individual stocks, to the tune of only around 5% of its portfolio. The portfolio consists of 49 stocks with the top five stocks constituting 26.29% of the portfolio, ensuring adequate diversification. The fund’s key exposures have been to the banking, automobile, and software sectors across timelines. While the expense ratio of the fund is 2.33%, the portfolio turnover ratio is 51%. Few managers are adept at investing in stocks across market segments but Apoorva Shah easily makes the cut. He uses his skills to good effect by running a multi-cap strategy that works across market cycles and over the long haul. The fund ranks among the best in its peer group and it can hold long-term investors in good stead.

Birla Sunlife Frontline Equity Fund Gem

With the market showing signs of edginess, a large-cap fund with a solid track record of delivering across market cycles may just be what the doctor ordered. Birla Sunlife Frontline Equity Fund, an old warhorse, fits the bill well. The fund’s annualised return since its inception in 2002 is an enviable 25%. It has beaten its benchmark, the BSE 200, convincingly by 5-9 percentage points over various time periods. It has been ahead of the BSE 200 about 97% of the time over the last five years. Birla Sunlife Frontline Equity Fund has been adept at containing downsides too, losing less than the benchmark during periods of market decline in 2009, 2011, and 2013. But in raging bull markets, its performance does not keep up with multi-cap funds and some peers such as DSP BR Equity Fund due to their lesser large-cap exposure. Birla Sunlife Frontline Equity Fund has been quick on its feet, increasing exposure to cyclical sectors such as banks and autos since August 2013, when the bull-run had just started; this has held the fund in good stead. The fund has remained mostly fully invested in equity and takes cash calls to the tune of about 5% during volatile periods. But it has also been nimble enough to shore up equity exposure in quick time when the tide turns. The Rs 9495 crore Birla Sun Life Frontline Equity Fund is one fund which will not only cushion your portfolio during turbulent times but also deliver healthy returns over a three- to five-year timeframe. The one, three, and five-year returns of the fund are 6.08%, 20.81%, and 11.39% as against the category average of 5.87%, 18.5%, and 9.34% respectively. It has not only outperformed the BSE 200 Index during bull phases but has also been successful in containing downsides during corrective phases. 85% of the assets are invested in large cap stocks. Finance, technology, and automobile constitute the top three sectors. The fund currently holds 75 stocks in its portfolio; this reduces concentration risk. The top five stocks constitute 21.84% of the portfolio. The fund’s expense ratio of 2.21% is much lower than that of its peer funds. The portfolio turnover of 22% can be justified since swift sector moves during volatile times helped the fund stay ahead of competition.

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