Monday, October 12, 2015

October 2015

John Bogle, the founder of Vanguard funds, is known to have said: "You could go your entire life without ever owning a sector fund and probably never miss it." An issue with sector funds is that investors rarely act on a well thought out strategy. They simply gravitate towards the flavour of the year, which means that they are already behind. For instance, energy funds put up a stellar performance in 2007 with a return of 105% that year. Investors piled onto funds in the sector. The next year the category average was -53%. No doubt, the mayhem that year hit every single sector. While it bounced back the next year, its returns in 2010, 2011, and 2013 were abysmal. Last year it made a comeback with a return of 47%, but still a far cry from its 2007 feat. One should never commit the grave error of investing in a sector fund simply because it has had a great run that year. Unlike a regular equity diversified fund, the fund manager does not have much latitude if the sector falls from favour. If one is invested in a sector fund based on a clear strategy, the hair-raising volatility should not prevent one from sticking to one’s investment strategy.

The consistent performance of all five funds in the October 2014 GEMGAZE is reflected in all the funds holding on to their esteemed position of GEM in the October 2015 GEMGAZE.

Canara Robeco Infrastructure Fund Gem
Diversified performer

Canara Robeco Infrastructure Fund is a thematic fund focused on identifying growth-oriented companies within the infrastructure space. Urbanization in India (both organic growth and the migration story) would arrive with strong demand for infrastructure, specifically in public transport (metro rail, mono rail), roads, power stations, electricity grids, water supply and treatment plants, airports, bridges, telecommunications networks, affordable housing, hospitals, etc. The fund, with an AUM of Rs 106 crore, aims at having concentrated holdings with a bias towards large market capitalization stocks at 56%. With a well-diversified portfolio of stocks in the construction space, energy, and services it employs fundamental analysis with a focus on factors such as the industry structure, the quality of management, sensitivity to economic factors, the financial strength of the company, and the key earnings drivers. The fund benchmarks the performance of its portfolio against the BSE 100 Index. Canara Robeco Infrastructure has been among the better performers in its category. The fund’s one-year return is 13.6% as against the category average return of 11.62%. The expense ratio of the fund is high at 2.99% while the portfolio turnover ratio is as low as 7%.

SBI Magnum FMCG Fund Gem
A good bet

In the past one year, the Rs 216 crore, Magnum FMCG Fund is perched at the top with 59% of the assets in large caps. The expense ratio is 2.9% and the portfolio turnover ratio is 19%. Braving all odds, the one-year return of the fund is 11.51% as against the category average of 14.15%. Over the three and five year periods, the fund posted 17.85% and 19.55% of CAGR, respectively as against the category average of 16.97% and 19.24% respectively. From the August 2013 low to July 2015, the Nifty index gained 37%. In contrast, the BSE Capital Goods index galloped 111%, with its PE multiple moving from 25 times to 37.2 times. Consumer companies, which had been the market favourites until that point, saw a far tamer performance. The CNX FMCG index, for example, rose just 11%. Most stocks that operate in this space have already moved up because revenue and profit growth for these companies were still better than firms in beleaguered sectors. Despite high valuations, companies in the consumption space still hold strong growth potential, thanks to lack of viable alternatives in the market. FMCG funds are, therefore a good bet. 

ICICI Prudential Banking & Financial Services Fund Gem
Outright outperformer

ICICI Prudential Banking & Financial Services Fund invests predominantly in large and midcap financial companies. 65% of the portfolio consists of large caps. This fund adopts a 'bottom-up' strategy, to identify and pick its investments across market capitalizations. The fund has not only outperformed its benchmark, the S&P BSE Bankex but has also outperformed other banking sector funds. The current AUM of the fund is Rs 903 crores and the one-year return is 15.90% as against the category average return of 11.62%. The expense ratio is 2.67 % while the portfolio turnover ratio is 39%.

SBI Pharma Fund Gem
Stays fit and maintains lead

SBI Pharma Fund sports an AUM of Rs. 778 crores. The number of stocks held by the fund in the last few months has hovered around 15. The concentration analysis reveals that the fund has around 60.28% assets allocated towards the top 5 stocks while the top 10 stocks make up around 89.5%. After the splendid rally witnessed over the last three years, pharma stocks have taken a breather now. The BSE Healthcare Index has shed almost 11% in the last one month, higher than the 7% fall in Nifty. SBI Pharma Fund has held on to its numero uno position consistently over the past two-three years, and has been the only fund to deliver benchmark beating returns across all timeframes. Not only did the fund outdo peers — UTI Pharma and Healthcare Fund and Reliance Pharma Fund — on an absolute return basis, but it has also been more consistent than its peers over the last several years. SBI Pharma Fund has been able to beat its benchmark, the BSE Healthcare Index, almost 68% of the time in the last five years, even as other pharma funds managed to beat their benchmark barely 40% of the time. The one-year return of the fund is 41.62% as against the category average of 34.22%. The expense ratio of the fund is 2.68% while the portfolio turnover ratio is 20%. A higher large-cap slant (over 68%) should hold the fund in good stead even during volatile times.
ICICI Prudential Technology Fund Gem
Exemplary performance

ICICI Prudential Technology Fund is a Rs 438 crore technology fund, which invests in large technology oriented companies. It invests in companies listed in the BSE Teck. Its portfolio has 73% exposure to large cap companies. The fund seeks to invest in knowledge sectors like IT and IT Enabled Services, Media, Telecommunications, and others. The one-year return of the fund is 14.24% as against the category average of 12.29%. Over one-, three- and five-year timeframes, the fund has outperformed its benchmark (BSE IT) convincingly — to the tune of 4-9 percentage points over the long term. In the last five years the fund has managed to deliver over 20% annually, while over a 10-year period it is 21%, which compares favourably with even the best of funds from the diversified category. It has bettered peer funds such as Franklin Infotech and SBI IT. Over five years, ICICI Prudential Technology fund has clocked a 20.8% return since it has focused on the top-tier IT companies instead of the second-tier companies. The expense ratio is 2.7% while the portfolio turnover ratio is 9%.

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