Funds find new themes for rollouts

The focus is now on valuations, like the P/E Fund

The equity rally over the last one year has led to fund houses launching products with new themes to attract investors and in the bargain also ramp up their assets under management (AUM).

The last few months have seen mutual funds launching products with two dominant themes - select sectors and the 'India Shining' story.

The UTI Thematic Funds and Reliance Diversified Power Fund belong to the former category that bets on the sectoral upside story, while those such as the Kotal Global India Fund and DSP Merrill Lynch TIGER Fund bank largely on the 'Emerging India' story. Sundaram Mutual Fund is launching the Sundaram India Leadership Fund this month-end.

But the new theme that seems to be emerging is the valuations story and the just launched Tata Equity P/E Fund is a case in example. The Tata mutual fund's latest offering is banking on selling valuations story at a time when markets have witnessed extreme volatility.

The new fund is based on the fact that after careful value analysis, there would be companies which would be able to ride both market and business cycles and create value in the medium to long term, according to Tata fund managers.

Ved Prakash Chaturvedi, chief executive officer, Tata Mutual Fund, said," Our investment philosophy is not just to buy high quality, well-managed and globally competitive companies, but buy them at appropriate valuations using techniques such as P/E ratio to identify the hidden potential and outperform over the medium term."

Sundaram's new fund will invest in select stocks of companies that meet the criteria of 'Leaders' in their respective sectors/subsectors.

T P Raman, managing director, Sundaram MF, said, "This is a unique fund that is thematic without being sectoral given that leaders raise their profits during economic upswings and display resilience during downturns."

The current scenario of political and policy uncertainties has lead to sectors being re-rated by the market, with many fund managers realigning their portfolios.

At this juncture, the mutual fund industry, intermediaries and financial advisors are taking pains to explain to investors that investments in equity markets create value over medium to long term, short-term volatility notwithstanding, and are citing anecdotal evidence to back their claims.

In fact , the valuations story seems to be gaining ground whether it is a bull or a bear run or even the current volatile market.

The Tata mutual fund's latest offering is banking on selling the valuations story at a time when the markets have witnessed extreme volatility, arguably more sentiment driven than fundamental in the last one week.

It uses the trailing P/E ratio - the ratio of the current market price to the actual reported earnings per share (EPS) for the immediately completed financial year - to identify stocks whose trailing P/Es are less than that of the BSE Sensex and invests a bulk of its portfolio in them.

But investors need not be confused with its namesake; the Franklin PE Ratio Fund, which is a strategic asset allocation fund that uses P/E of the NSE Nifty to determine whether the equity market is overheated and, thus, shift its allocation to debt and or money market.

Thus, while both the funds use P/E ratios, the objective for its use and the way it is used are entirely different, said analysts watching the mutual fund industry. Analysts have mixed opinions about the spate of new products that have been launched recently.

Chaturvedi, though, said the "initial response has been extremely encouraging".