Fund performance: Bear market winner

Sucheta Dalal 28 Dec 2011

The large-cap equity funds have done very well in the past one year of bear market. A systematic investor would have hardly suffered, points out Jason Monteiro

Jason Monteiro

The Nifty had peaked at 6,338 in November 2010. We have crossed another November and the performance of the equity market has been miserable. During the bear market of the past one year, the Nifty has fallen by nearly 21%. Equity diversified mutual funds invest a majority of their assets in large-cap stocks and stay put. Not surprisingly, they have also gone down with the market. But strangely, out of the 150 schemes that invest in large-cap diversified stocks, 113 have outperformed their benchmark index. This is extremely commendable and shows the high quality of such funds.

The best of the lot has been Birla Sun Life India GenNext Fund which notched up a return of -6.76%, doing better than its benchmark index, S&P CNX Nifty, which returned -18.79%. The performance looks especially good because the Fund was fully invested during most of this period. Its top five equity stocks include ITC, Bharti Airtel, Hindustan Unilever Ltd (HUL), Bata India and HDFC Bank. Notice that its exposure to Reliance Industries (RIL) and software companies is rather low.

UTI India Lifestyle Fund delivered a return of -6.93%, outperforming the benchmark index, CNX 500, which returned -21.92%. In November 2010, its top five picks, which consisted of Titan Industries, ITC, Housing Development Finance Corporation (HDFC Ltd), GAIL (India) Ltd and HDFC Bank, accounted for almost 30% of its total assets. HUL, CRISIL, Akzo Nobel India and ICICI Bank are now among its top five picks, along with ITC. Once again, this Fund has gained.

Canara Robeco Large Cap+ Fund, which was launched in August last year, was the third on the list with a return of -7%. Its benchmark index, BSE 100, was down by -19.96%. Unlike the others, this Fund has not shuffled its top five picks around. HDFC Bank, RIL and Bharti Airtel remain its top three picks. The key to its out-performance was that, at the market peak of November 2011, around 14% of its assets were in cash and debt. This is now down to 6%. Another scheme from UTI Mutual, UTI Opportunities Fund, fell -8.21%, less than its benchmark index, BSE 100. ITC and HDFC Ltd were among its top picks. In October 2011, 10% of its assets were in debt and cash compared to 4.57% in November 2010.

AIG India Equity Fund gave a return of -8.86% and just two of its top 10 holdings of November 2010 are amongst its top 10 list of October 2011, which shows that its portfolio has changed significantly. The stocks that remained were Infosys and Hero MotoCorp which are 12% of the total assets of its current portfolio.

Sahara Super 20 Fund has increased its cash component from 5.38% to 13.26% over the year. Like AIG India Equity Fund, just two of its top 10 stock picks remain in its latest disclosed top 10 portfolio. These two stocks are Power Grid Corporation of India and Bharti Airtel. HUL seems to be a favourite of fund managers and accounts for 6.33% of the total assets of the Fund.

Tata Dividend Yield Fund returned -9% in the past one year compared to its benchmark index which returned -22%. Most of its top 10 holdings have remained the same. CRISIL, GlaxoSmithkline Consumer Healthcare and HUL are a few names in the list. ICICI Prudential Focused Bluechip Equity Fund returned -9.56% for the year; RIL, Bajaj Auto, Axis Bank, and Bank of Baroda remained in its portfolio over the year. Its cash and debt exposure has increased from 2.11% to 4.73%.

BNP Paribas Equity Fund had nearly all (99%) of its assets in large-cap and mega-cap stocks in November 2010. Right now, it is almost fully invested with 4% in cash. LIC Nomura MF India Vision Fund had a similar allocation. But BNP Paribas Equity Fund made it to the top 10 list whereas LIC Nomura MF India Vision Fund is in the bottom 10. In November 2010, BNP Paribas Equity had Infosys, RIL, ICICI Bank, Larsen & Toubro and ITC in its top five which accounted for 41% of the total assets. In its latest disclosed portfolio, the top five accounted for 28% of its total assets while ITC and Bharti Airtel accounted for nearly 22%. LIC Nomura MF India Vision Fund, like BNP Paribas Equity Fund, had Infosys and RIL in its top five and they continue to be in its top 10 list. The difference in returns of both the Funds just boils down to the fund managers’ stock-picking skills.

Like its LargeCap+ Fund, Canara Robeco’s Equity Diversified Fund has HDFC Bank, Bharti Airtel and RIL in its top five picks; they have stuck to these stocks in their current portfolio as well. These stocks account for nearly 17% of its current portfolio.

The Laggards
In the losers’ list, not surprisingly, three funds of JM Financial, namely, JM Multi Strategy Fund, JM Basic Fund and JM Core 11 Fund, were the worst performers with returns of -27%, -34% and -38%, respectively. DSP BlackRock India Tiger Fund had Voltas among its top five picks, a stock which has eroded by more than 60% in the past one year.While two of its schemes are in the top 10, the Contra Fund of UTI has made it to the bottom 10. In the very second issue of Moneylife, we had suggested that UTI Contra Fund was not worth buying, a point that we have reiterated about all contra funds in several subsequent articles. This view has repeatedly proven correct. The top 10 picks of the UTI Contra haven’t changed. Tata Motors and HUL are the two new additions. Infosys and ICICI Bank continue to be the portfolio heavyweights, with 13% of the scheme’s total assets. In November 2010, just 1.4% was in debt and cash; this has now increased to 5%. None of these stocks has anything contra about them.

Morgan Stanley Growth Fund had less than 1% in debt and cash in November 2010 which was a wrong call. Some 30% of its assets are in the same six stocks which were present in its top 10 holdings of November 2010. HDFC Bank accounts for nearly 10%. HSBC Unique Opportunities has RIL and Infosys in its top 10 list which have been a big drag. Principal Growth Fund is no different.

Interestingly, even if you had started investing Rs10,000 per quarter at the peak of the market in November 2010, in say, HDFC Top 200, your Rs40,000 would have become Rs35,342, a loss of just 12% while the scheme itself was down 18% and its benchmark declined 21%. This shows the benefit of regular investing. If you had used a Moneylife formula, which we will unveil shortly, you would have invested Rs46,662 and ended up with Rs41,617, down by just about 10%.