Kaustubh Belapurkar, Director of Fund Research at Morningstar Investment Adviser, spoke on CNBC-TV18 about the importance of large-cap funds in a portfolio. Below is an extract from the interview where he discusses specific funds.
Birla Sunlife Frontline Equity Fund is being managed by Mahesh Patil, CIO-Equities at Birla AMC, who has been doing so for the last 11 years.
Looking at the style and the way the fund is managed, it's sort of a pure growth strategy where he looks at high earnings growth, good return on equity and good return on capital. It is a slightly diversified portfolio with around 70-80 stocks. He loosely aligns his portfolio to the BSE 200 sectoral weights, but has got great stock picking skills and that is where the bottom-up approach comes to the fore in this strategy.
Over the last five years, the fund has outperformed the Sensex by about 600 bps on annualised basis, which is staggering. If I look at the consistency of returns; over the last 10 years it has been a quartile one or two performer throughout. So an investor getting into this fund would be very comfortable about the consistent track record of returns.
We are comfortable with a manager of this sort.
ICICI Prudential Top 100 has a slightly different large-cap strategy which is more aggressive when compared to other funds from the AMC’s stable. It is a regular diversified large-cap fund but what I would call a contra strategy on the large-cap side. So while the portfolio would be holding regular sectors, the fund manager is actually at this point overweight in sectors like materials, industrials and energy, and that is where he is trying to derive value from.
His strategy is to look at sectors where the valuations are slightly depressed but the growth potential is still there. For instance, Power Grid which is one of the stocks that has done well. Larsen & Toubro is one of the top performers in this portfolio over the last five years.
So while a lot of fund managers tend to hold banks, pharmaceuticals and technology stocks which have done well, he has taken a contra call on some of these sectors and they have played out well for him.
SBI Bluechip was at the bottom of the pile in terms of performance around 5 years ago. Ever since Sohini Andani has taken over, she has brought a very sharp focus to the fund. She also does tend to take a little bit of a contra call and that probably comes from her background on the sell-side research.
What we track is how the fund performs in a bullish market and in a bearish one. The trend that we tend to notice is that most of the mutual funds in India, especially large-caps, tend to mirror their performance of the benchmark on the upside in the bullish markets. On the downside is where the value of these managers comes in. For example, if the Sensex were to fall by 5%, someone like Sohini’s fund would probably only fall by 3%. So, she is protecting their capital in those times and on the upside she is capturing most of the upsides. That is where the value can come in from managers like Sohini.
Materials and industrials are some of the places where she is currently overweight vis-à-vis the index. She has taken that little bit of a contra call in the sense where the others would probably be more towards financial and technology companies.
