 "Fund Pick: Franklin India Smaller Companies Fund")
Franklin India Smaller Companies Fund has been classified under the small and midcap category in the CRISIL Mutual Fund Ranking. The fund has been ranked in the top 30 percentile (CRISIL Fund Rank 1 or 2) for the past four quarters. The fund's average assets under management (AUM) stood at Rs 588 crore for the quarter ended June 2014; over the past year, the average AUM has increased 98 per cent.
Managed by R Janakiraman and Roshi Jain, the fund's objective is to provide long-term capital appreciation by investing in small and mid-cap companies. It intends to have at least 75 per cent allocation to smaller companies with market capitalisation below the top 100 stocks in the CNX 500 Index.
Performance
The fund has outperformed its benchmark (CNX Midcap Index) and its category across various time frames. In the three-year time frame, it has delivered annualised returns of 25.2 per cent compared with 11.2 per cent and 20 per cent by the benchmark and the category, respectively.
Rs 1,000 invested in the fund since inception (January 13, 2006) would have grown to around Rs 2,776 (compounded annualised return of 12.8 per cent) as on June 27. A similar investment in the benchmark would have grown to Rs 2,578 (11.8 per cent).
A monthly systematic investment plan (SIP) of Rs 1,000 for a period of seven years (on a principal of Rs 84,000) would grow to around Rs 1.9 lakh, delivering an annualised return of 22.91 per cent. A similar investment in the benchmark would have grown to around Rs 1.4 lakh (13.74 per cent).
The fund has performed well on a risk-adjusted basis as well. Sharpe ratio (which measures the excess returns over the risk-free rate per unit of risk) of the fund is at 1.5 for a period of three years ended June 27, higher than the benchmark (0.3) and category average (1.1).
Over the past three years ended May, the fund has held an average 93 per cent exposure to equities and the rest in cash. Of this, an average 77 per cent is invested in small and mid-cap companies and only 16 per cent in large-cap stocks (top 100 stocks based on market capitalisation on the National Stock Exchange).
To limit the downside in a falling market, the fund increased the allocation to large caps by eight per cent when the benchmark corrected by 19.19 per cent between December 2012 and July 2013. Since then, the fund has held average 80 per cent exposure to small and mid-cap stocks as the markets rallied (from August 2013 to May 2014).
In the past three years ended May 2014, 51.5 per cent of the portfolio has been consistently held; the top and consistent holdings include Pidilite Industries, IPCA Laboratories, IndusInd Bank and Amara Raja Batteries. During this period, the fund has been overweight on chemicals, industrial products and auto ancillaries sectors and underweight on petroleum products compared with the category and benchmark which contributed to its superior performance.
The fund was diversified at the sector level over a three-year period ended May 2014. The exposure to the top five industries was 47.5 per cent compared with the category's 52 per cent. At the stock level, the fund held 46 companies in its portfolio (average) compared with 48 for the category. The top 10 stocks constituted 41 per cent of the fund's portfolio in line with the category's 40 per cent in the said period.
Managed by R Janakiraman and Roshi Jain, the fund's objective is to provide long-term capital appreciation by investing in small and mid-cap companies. It intends to have at least 75 per cent allocation to smaller companies with market capitalisation below the top 100 stocks in the CNX 500 Index.
Performance
The fund has outperformed its benchmark (CNX Midcap Index) and its category across various time frames. In the three-year time frame, it has delivered annualised returns of 25.2 per cent compared with 11.2 per cent and 20 per cent by the benchmark and the category, respectively.
Rs 1,000 invested in the fund since inception (January 13, 2006) would have grown to around Rs 2,776 (compounded annualised return of 12.8 per cent) as on June 27. A similar investment in the benchmark would have grown to Rs 2,578 (11.8 per cent).
A monthly systematic investment plan (SIP) of Rs 1,000 for a period of seven years (on a principal of Rs 84,000) would grow to around Rs 1.9 lakh, delivering an annualised return of 22.91 per cent. A similar investment in the benchmark would have grown to around Rs 1.4 lakh (13.74 per cent).
The fund has performed well on a risk-adjusted basis as well. Sharpe ratio (which measures the excess returns over the risk-free rate per unit of risk) of the fund is at 1.5 for a period of three years ended June 27, higher than the benchmark (0.3) and category average (1.1).
Over the past three years ended May, the fund has held an average 93 per cent exposure to equities and the rest in cash. Of this, an average 77 per cent is invested in small and mid-cap companies and only 16 per cent in large-cap stocks (top 100 stocks based on market capitalisation on the National Stock Exchange).
To limit the downside in a falling market, the fund increased the allocation to large caps by eight per cent when the benchmark corrected by 19.19 per cent between December 2012 and July 2013. Since then, the fund has held average 80 per cent exposure to small and mid-cap stocks as the markets rallied (from August 2013 to May 2014).
In the past three years ended May 2014, 51.5 per cent of the portfolio has been consistently held; the top and consistent holdings include Pidilite Industries, IPCA Laboratories, IndusInd Bank and Amara Raja Batteries. During this period, the fund has been overweight on chemicals, industrial products and auto ancillaries sectors and underweight on petroleum products compared with the category and benchmark which contributed to its superior performance.
The fund was diversified at the sector level over a three-year period ended May 2014. The exposure to the top five industries was 47.5 per cent compared with the category's 52 per cent. At the stock level, the fund held 46 companies in its portfolio (average) compared with 48 for the category. The top 10 stocks constituted 41 per cent of the fund's portfolio in line with the category's 40 per cent in the said period.
CRISIL Research