From Jan 2014 through June 2014, the S&P BSE Sensex has risen by 20%, while the CNX Midcap index has appreciated by 37%. As with every market upturn, this time around too, the performance of equity funds has come under the scanner. There are several articles doing the rounds, detailing which equity funds and fund categories have fared the best. Keeping with the norm, the investing community has yet again displayed little tolerance for funds that have failed to make the most of rising markets. As a result, funds that have underperformed (relative to peers and/or benchmark indices) are being vociferously scorned.
I thought it will be interesting to focus on 3 equity funds that haven’t had an impressive run thus far, but continue to be strong offerings, nonetheless. To be clear—I’m not suggesting that six months is an adequate time period for evaluating equity funds; neither is that a recommended investment horizon.
However, the fact remains that there is a lot of short-term oriented advice and views doing the rounds. Investors can and do get influenced by such erroneous advice. If anything, this commentary is intended at refuting such short-term views. Here’s a checklist of 3 equity funds that investors shouldn’t give up on.
1. Franklin India Bluechip Fund
It has been a tough ride for the fund, thus far in 2014. On a year-to-date (YTD) basis ending June 2014, the fund (up 21%) has marginally outscored its benchmark index (S&P BSE Sensex) by one percentage point. In a peer-relative sense (i.e. versus large-cap funds), the performance has been found wanting. Here’s why: to begin with, manager Anand Radhakrishnan adheres to the fund’s large-cap nature far more stringently than the category norm; in the present market upturn, small/mid-caps have outscored their large-cap peers. Also, the manager’s top-picks Infosys and Bharti Airtel have detracted from the fund’s performance.
Why you should keep the faith:
The fund has all the makings of a top-notch offering. Supported by an accomplished investment team, Anand ranks among the best portfolio managers in the country. The investment process is robust—research-driven with an unwavering focus on quality and reasonably valued stocks. The benchmark-agnostic approach coupled with willingness to trade-off short-term pain for long-term gains, only further accentuates the likelihood of a divergent showing versus the norm, in the near-term. However, over the long-haul, the fund remains ably equipped to reward investors. Finally, it helps that the fund is backed by one of best fund companies in the country.
2. DSP BlackRock Small and Mid Cap Fund
Manager Apoorva Shah hasn’t had the best of times in the recent past. In 2013, funds helmed by him had an eminently forgettable year; among other reasons, Shah’s bet on a macroeconomic turnaround didn’t quite come off. As for this fund in particular, despite having bested its benchmark (CNX Midcap) both in 2013 and thus far in 2014, it has failed to match the showing clocked by a typical small/mid-cap peer. In the Jan 2014-June 2014 period, Shah’s investments in a motley mix of stocks such as IPCA Labs, Persistent Systems and Britannia Industries have held back the fund.
Why you should keep the faith:
Not many managers can match Shah when it comes to skilfully combining fundamental factors (such as an in-depth understanding of stocks) with elements such as market sentiment and news flow. The investment process though not robust in the conventional sense, is certainly workable. It helps that the manager is at home with the process, and executes it with skill. Over the years, Shah has displayed the ability to rapidly realign the portfolio and recover lost ground. Another factor in the fund’s favour is the fund house which ranks among the better ones in the industry. All in all, the fund continues to be a strong long-term bet.
3. SBI Magnum Global Fund
A cursory glance at this fund’s recent performance might lead one to believe that manager R. Srinivasan has lost his touch. YTD ending June 2014, the fund has appreciated by 31%, and underperformed the S&P BSE Midcap index by nine percentage points; on the peer-relative parameter, the fund fares even worse. Interestingly, while the manager’s top-picks have by and large fared well, select holdings from the financial services, media and health care sectors have taken away from the fund’s showing.
Why you should keep the faith:
In the small/mid-cap segment, few managers can hold a candle to Srinivasan. The manager relies on intensive research to ferret out growth stocks. The emphasis on business competencies further underpins the process. Over the years, he has displayed an uncanny ability to pick winners ahead of the curve. Another positive is Srinivasan’s willingness to back his conviction bets, and adhere to the fund’s small/mid-cap nature. At an asset size of INR 10.7 billion (as of June 2014), capacity—a typical area of concern in small/mid-cap funds—isn’t a worrying aspect as yet. The fund’s long-term credentials remain untarnished.
On a concluding note, just as near-term underperformance doesn’t dent an inherently strong fund’s long-term prospects, a strong showing clocked by a mediocre fund on the back of rising markets, doesn’t enhance its long-term prospects either. Be wary of such short-term wonders.
Data Source: Websites of fund companies, www.bseindia.com, www.nseindia.com
No comments:
Post a Comment