 "Funds with great records")
At a time when UTI Mastershare has completed three decades of existence, there are 21 other funds in India that have been around for 20 years or more. Many of these funds have a stellar track record. Reliance Growth Fund, for instance, has given its investors a compounded annual return of 25.5 per cent in the past 20 years. A sum of Rs 1 lakh invested in it would have grown into a humongous Rs 94.4 lakh in the past two decades. Patient investors who stuck to such funds through the ups and downs of the equity markets would have seen their wealth zoom in the past two decades. Here’s a look at some of these wealth creators that continue to perform robustly even today.
HDFC Top 200: This Rs 13,024-crore fund has been managed by Prashant Jain since July 2004. Earlier, the fund followed a multi-cap strategy but for the past several years, it has been a large-cap play. The fund manager selects stocks from the S&P BSE 200. He follows a growth at reasonable price approach, wherein he looks for companies with above-average growth prospects that are trading at a reasonable valuations. He focuses strongly on avoiding mistakes, especially buying assets that are overvalued from a long-term view. Mostly a buy-and-hold fund manager, his annual portfolio turnover tends to be in the 20-30 per cent range. He also avoids large cash calls.
To picking stocks, Jain uses both quantitative and qualitative criteria. The former include the sector’s growth prospects, the company’s competitive position in the industry, analysis of financial statements, and cash flows.
The fund witnessed a spell of underperformance in 2015 but has bounced back this year, with materials, financial and energy stocks contributing to the turnaround.
Owing to a large and skilled team of analysts, Jain’s own stock picking skills, and his ability to stick to his convictions (as his holding on to PSU bank stocks even in the face of severe criticism in 2015 demonstrates), this fund could have periods of underperformance but should continue to generate good returns over the long term.
Birla Sun Life Advantage: This multi-cap fund has been managed by Satyabrata Mohanty since October 2011. The fund manager follows a top-down approach for sector selection and a bottom-up approach for stock selection within those sectors. Allocation to large-cap stocks is usually in the 60-70 per cent range.
The fund’s portfolio usually has around 50-55 stocks. The fund manager likes to take strong sector bets: the top four sector allocations could account for as much as 70 per cent of the portfolio. The fund’s turnover ratio is around 80 per cent. Most of the churn happens when the fund manager shifts his bets from one sector to another.
The fund usually invests in stocks with the ability to grow top line and bottom line in a stable and predictable manner. The fund manager looks for stocks with the potential to compound earnings at 20-22 per cent annually and those having high return ratios and sound margins. He usually avoids cyclicals and turnaround stocks.
Reliance Growth: Veteran fund manager Sunil Singhania has been steering this fund since March 2006. While some fund analysts classify the fund as multi-cap and others as mid-cap, its fund manager views the fund as a larger mid-cap fund. Large-cap allocation is usually 30-40 per cent, while the rest of the portfolio is invested in mid- and small-cap stocks. “The fund’s objective is to generate alpha while ensuring that the volatility level is lower than that of a typical mid-cap fund,” says Singhania.
The fund manager’s investment style is a combination of growth and value. “Our market offers great opportunities to invest in growth sectors. However, I am hesitant to buy growth stocks at any valuation. When opportunities to buy deep value stocks arise, I go for them, too. But, even value stocks must have some earnings prospects,” says the fund manager.
If a stock’s growth pans out as expected, the fund manager holds on to it indefinitely. But, he is also quick to cull those which don’t meet his expectations. When evaluating a stock, he focuses on the quality of business. Typically, he looks for stocks that have the ability to produce cumulative earnings of at least 50 per cent over three years.
Franklin India Prima Fund: This fund was managed by K N Sivasubramanian from its inception in December 1993 until February 2014, when he decided to retire from fund management. The fund is positioned as a diversified fund with a focus on mid- and small-cap stocks. “Well run small and mid-sized companies are likely to have faster earnings growth, especially in a growing economy like India. If identified early, investments in such companies can deliver significant capital appreciation over time,” says R Janakiraman, vice president and portfolio manager, Franklin Equity, Franklin Templeton Investments-India, who manages the fund currently.
The fund avoids growth businesses trading at high valuations. “Broadly, growth at reasonable price comes close to describing our investment style,” says Janakiraman. The fund manager focuses on businesses with competitive advantages, operating in areas with longer and larger growth opportunities. “We seek attractive levels of return on capital, free cash flow, and moderate level of capital intensity,” says the fund manager. He also looks for competent and disciplined management along with a reasonably alert board of directors. Sometimes, he also goes for restructuring opportunities or companies going through a temporary phase of weakness.
