GEMGAZE

September 2018

All the GEMs from the 2017 GEMGAZE save Birla Sunlife Frontline Equity Fund, which performed reasonably well through thick and thin, have been accorded a solemn farewell in the 2018 GEMGAZE. Funds of various hues have been accorded a red carpet welcome.

Birla Sunlife Frontline Equity Fund Gem

Birla Sun Life Frontline Equity Fund, one of the most consistent large cap funds over the last several years, has always been in the top 2 quartiles and it has been in the top quartile in the last 4 years out of 5. The out performance gap versus the benchmark has been fairly stable, which shows prudent risk management. 3 year rolling return of the fund was never negative in the last 10 years; the minimum 3 year rolling returns was 1.2%. The maximum three year rolling returns was 31%. The expense ratio of the fund is 2.25% and turnover is 55%. This fund has generated significant alpha over benchmark and category over a decade. Good performance resulted in assets expanding to over Rs 21,880 crore by August 2018. The fund has a bias for large cap growth oriented stocks. Large cap stocks account for nearly 90% of the portfolio value. In terms of sector allocation, the portfolio has a bias towards cyclical sectors like Banking and Finance, Automobiles, Oil and Gas etc. To balance the exposure to cyclical sectors, the fund also has significant allocations to defensive sectors like Technology, FMCG and Pharmaceuticals which comprise about 23% of the portfolio value. In terms of company concentration the fund is fairly well diversified, the top 5 companies, HDFC Bank, Infosys, ITC, ICICI Bank and Tata Motors, all Sensex heavyweights, account for only 22% of the portfolio value. The fund is well diversified with around 70-80 stocks in the portfolio. Birla Sun Life Frontline Equity Fund has built a strong reputation as a wealth creator for its investors. Steady management team manages the fund with style continuity. This results in low volatility and sustained performance.

HDFC Midcap Opportunities Fund Gem

A silent consistent performer over the years, the Rs. 21,952 crore HDFC Mid-Cap Opportunities Fund, launched over a decade ago, has made its name among consistent performers in the mutual fund arena. This fund is an open ended scheme managed by star fund manager Chirag Setalvad since inception. HDFC Mid-Cap Opportunities Fund earlier had a mandate to invest in a mix of mid-caps and small-cap stocks. However, the aim now will be to predominantly build a portfolio of mid-cap companies that have reasonable growth prospects, sound financial strength, sustainable business models, and acceptable valuation that offer potential for capital appreciation. HDFC Mid-Cap Opportunities Fund follows bottom up approach of stock picking wherein the stocks are bought primarily for the strengths of company fundamentals rather than the strength of the macro-economic indicators. It holds a well-diversified equity portfolio with no more than 10% exposure to any particular sector. None of the holdings have an exposure of over 5% in the portfolio. Out of the 65 stocks in the portfolio, the top 10 holdings command an allocation of 30%. In terms of long-term performance, HDFC Opportunities Fund has generated strong returns in the market rallies of the past and has been able to restrict losses in a bear market. The expense ratio is 2.25% and the turnover ratio is 59%. Had you invested Rs 10,000 in HDFC Mid-Cap Opportunities Fund, five years back in 2013, it would have grown to Rs 33,831 in 2018. This translates in to a compounded annualised growth rate of 27.59%. In comparison, a simultaneous investment of Rs 10,000 in its current benchmark - Nifty Midcap 100 - TRI would now be worth Rs 27,718 (a CAGR of 22.60%). Over the past five years, HDFC Midcap Opportunities Fund has taken a lead over the benchmark right from the very beginning. Through the years it has managed to expand the gap over the benchmark, leading to an attractive alpha at the end of the 5-year period.

ICICI Prudential Bluechip Fund (erstwhile ICICI Prudential Focused Bluechip Fund) Gem

Among mutual fund schemes that have singular focus on large-sized companies, the Rs. 19,836 crore ICICI Prudential Bluechip Fund has distinguished itself by consistently beating its benchmark and peers by a reasonably good margin. The fund has traditionally had a higher-than-category allocation to large caps. Its mandate earlier called for a concentrated portfolio, with the stock picks drawn from the top 200 stocks by market cap. Post SEBI reclassification, the fund is repositioned as a pure large-cap fund. It has tweaked its mandate to maintain a minimum 80% exposure to the top 100 stocks by market cap. This will not materially change its risk or return profile, given that the market-cap range is practically the same. The 'focused' approach has been dropped from the mandate. This is in any case a positive, given that the fund's burgeoning size made a very compact portfolio difficult. The only limitation to assessing this fund is that despite its consistent show in the last nine years, it has not seen a serious bear market since inception. In 2011 and in 2015, it managed to contain downside well relative to the market. Another factor that works in favour of the scheme is the presence of ace fund manager S Naren, who has a strong record of being at the helm of well-performing schemes. He is known to be one of the few fund managers who have been conscious of investing in companies which may be out of favour, but hold promise of visibility of earnings in the long term. In the past three- and five-year periods, the scheme has delivered 13% and 18% returns, while its benchmark, Nifty50 TRI, has given 12% and 16% returns in the same period, respectively. This scheme has beaten both the category and benchmark in eight of the nine years since launch.  The expense ratio is 2.11% and the turnover ratio is 116%. Investors looking to invest in an ‘all-weather’ and ‘true to-its-label’ large cap portfolio can consider investing in this scheme. 

DSP Equity Opportunities Fund (erstwhile DSPBR Equity Opportunities Fund) Gem

A very steady performer in the multi-cap category, this Rs. 5947 crore fund is a flexi-cap fund with no pre-defined market capitalisation limits. However, the fund has had a bias towards large caps. In recent times, the fund has maintained a 70% plus large-cap exposure, with mid-cap stocks at about 20%. It is overweight on large caps relative to the category. The fund does not like to cling to the 'growth' or 'value' styles. Key parameters looked at while identifying an investible stock are the growth potential of the business, confidence on predictability of business variables, return on equity, management quality and stock valuation (relative to the stock's history and peers). The fund contains risks through a maximum portfolio weight of 10% in a stock and has a cap of 7.5% on its cash levels. After a short blip in 2012, this fund has pulled up its socks to deliver significant outperformance in the last five years. Its three- and five-year returns are 6-7 percentage points ahead of the benchmark returns and 3-4 percentage points more than the category returns. Looking back, the performance shows that the fund has contained losses well relative to its benchmark in the bear years of 2008 and 2011. But it has trailed the index in a few bull years such as 2007 and 2012. This could be indicative of its conservative approach to valuations. The expense ratio is 2.2% and the turnover ratio is 80%. With a 10-year return of 12.29%, the fund has outperformed the benchmark index (9.51%) as well as the category average (10.99%). The fund has beaten its benchmark and the category average over the past decade. The scheme has been a consistent outperformer in recent years.