These equity funds from Franklin Templeton Mutual Fund were assigned a Gold and Silver by analysts Himanshu Srivastava and Nehal Meshram over this year.
Franklin India Prima
- Analyst Rating: Gold
- Star Rating: 4 stars
- Fund Manager: Janakiraman
- Category: Small & Mid Cap
- Investment Style: Mid Growth
- Portfolio Role: The fund invests primarily in quality mid-cap companies with predictable business models.
- Morningstar Analyst: Himanshu Srivastava
The prerequisites for the long-term sustainability of the fund are a skilled manager and a solid investment process. Pleasingly, Franklin India Prima Fund makes the grade on both counts.
Janakiraman has helmed this fund since February 2011. With a research experience spanning over 18 years, he is the designated small/mid-cap specialist with the fund house and manages its small/mid-cap strategies. Thus, he uses his domain experience to the hilt in managing this fund.
Being a small/mid-cap specialist, Janakiraman is conversant with the risks associated with investing in this segment and accordingly constructs the portfolio. Intensive research therefore forms the core of his investment approach. He scouts for high-quality mid-caps that have sustainable economic moats, predictable businesses, consistent earnings growth, and reasonably high returns on equity with low balance sheet risk. He will pay what he feels is the right price for a stock, as long as he believes in the growth prospects of the business, but he generally avoids expensive areas of the market. He also invests in beaten-up stocks or out-of-favour growth companies, especially when the company is affected by external factors rather than deteriorating fundamentals. He is prepared to be patient for the stock idea to play out, as his investment horizon typically spans a business cycle.
A seasoned manager at the helm, an investment process that can be easily plied across market conditions, and a strong parent in Franklin Templeton, which boasts a strong investment culture, make this fund a best-in-class offering.
Franklin India Bluechip
- Analyst Rating: Gold
- Star Rating: 4 stars
- Fund Manager: Anand Radhakrishnan
- Category: Large Cap
- Investment Style: Large Growth
- Portfolio Role: Large-cap-focused with a bias for quality growth stocks.
- Morningstar Analyst: Himanshu Srivastava
The most appealing aspects of Franklin India Bluechip are a seasoned fund manager, its management team and the investment style it uses. The management team is headed by Anand Radhakrishnan, who is a skilled manager and a proficient stock-picker. He has built an impressive track record over the years across the number of funds he runs for the fund house. He has been managing this fund since April 2007 and is supported by a strong and experienced investment team that ranks among the best in the industry.
Focused on growth and quality companies, the fund embodies Franklin Templeton’s brand of management. The investment approach is team-driven, where the focus is on identifying businesses with clean balance sheets, strong business models, sustainable competitive strengths, and high corporate governance standards. Though Radhakrishnan looks for companies with sustainable growth prospects, he is fairly valuation-conscious and is willing to stay away from issues he believes are overvalued. Clearly he is unlikely to be at his best in sharply rising or momentum-driven markets but he has proved himself as a smart stock-picker. He frequently invests in beaten-down stocks or out-of-favour growth companies, especially due to external factors rather than deteriorating fundamentals. This aspect of the strategy has served the fund well.
Investors must bear in mind that Radhakrishnan’s investment approach can result in significant deviations in the fund’s performance from that of the benchmark index and category peers. That said, the large-cap, quality-driven strategy provides resilience in downturns (for instance in 2008 and 2011). It is also noteworthy that Radhakrishnan has chosen to stand by his investment style even when it is out of favour, suggesting a disciplined approach. We believe that his investment style will hold the fund in good stead over a market cycle.
Franklin India Prima Plus
- Analyst Rating: Gold
- Star Rating: 4 stars
- Fund Manager: Anand Radhakrishnan
- Category: Flexi Cap
- Investment Style: Large Growth
- Portfolio Role: Large-cap focused with a bias for quality growth stocks.
- Morningstar Analyst: Himanshu Srivastava
The fund has all the ingredients to be investors’ preferred choice.
There are many factors that give Franklin India Prima Plus an edge over its competition. The foremost is manager Anand Radhakrishnan and his investment team, which, in our opinion, rank among the best in the industry. This is followed by intensive research that underpins a robust investment process. Radhakrishnan works closely with his team to uncover quality companies capable of delivering sustainable growth. Plying a bottom-up approach, he scouts for companies with clean balance sheets, strong business models, sustainable competitive strengths, and high corporate governance standards. Over time, he has proved himself to be an astute stock-picker.
Admitting that the stocks meeting his criteria need not be cheap, Radhakrishnan will pay what he believes is a fair price and has shown this in small/mid-caps where he has displayed a willingness to pay a higher price for incremental growth. Despite the growth orientation, the fund isn’t a commonplace growth offering. The manager often displays a rather contrarian streak in his picks--for instance, his exposure to the telecom sector this year. He is also conscious of rich valuations and will exit stocks/reduce allocation to stocks which he believes are fully valued (for instance cement stocks in 2014). The strategy has delivered impressively on Radhakrishnan’s watch (April 2007-October 2017), with the fund outperforming 72% of peers on the return front.
However, the investment style has a few caveats. The penchant for concentrated and contrarian bets can expose the fund to above-average volatility and result in a divergent showing versus the norm in the short term. Also, the quality bias and valuation-consciousness may hold the fund back when speculative fare is in favour. Clearly, investors must have an investment horizon spanning a market cycle.
Having said that, an able manager backed by a solid team, a strong process, and one of the best fund companies in the industry add up to a top-class offering.
Franklin India High Growth Companies
- Analyst Rating: Silver
- Star Rating: 4 stars
- Fund Manager: Roshi Jain
- Category: Flexi Cap
- Investment Style: Large Growth
- Portfolio Role: A fluid and aggressive investment style at play.
- Morningstar Analyst: Himanshu Srivastava
Franklin India High Growth Companies Fund has many positive attributes, including an able manager, a solid investment team, and a sound process. Portfolio manager Roshi Jain is an old hand at Franklin Templeton Mutual Fund, having joined the fund house as an analyst in May 2005. She became the comanager for this fund in October 2012 alongside Siva Subramanian and became the lead manager in March 2014. She uses her analyst experience to good effect in managing this fund. We found her to be well ingrained into Franklin Templeton’s thought process and investment style.
The investment strategy is a typical Franklin Templeton one. The broader framework of the fund is to play growth over the long term. Jain scouts for sectors which offer high growth, and within sectors she tries to identify companies which are expected to grow faster than peers and are available at reasonable valuation. While the investment strategy is straightforward, there is an aggressive streak in Jain’s investment style. For instance, she freely takes big sector and stock bets. Also, she constructs a relatively concentrated portfolio for this fund vis-à-vis peers. However, we believe that the presence of a high-calibre investment team makes such an approach work.
The strategy has some inherent risks, though. The stock and sector bets may expose the fund to above-average volatility if the investment thesis goes wrong. Also, given the focus on high-growth companies, the fund may struggle in an event of a downturn in economic growth or when the impending growth in the economy is delayed. A case in point is the fund’s mediocre performance in 2015.
Having said this, we draw confidence from Jain’s presence at the helm, her executional capabilities, and her research-driven investment approach. Further, the presence of an able asset manager in Franklin Templeton, whose stewardship credentials are noteworthy, only reinforces our conviction. Hence, we re-assign a Morningstar Analyst Rating of Silver to the fund.
Templeton India Equity Income
- Analyst Rating: Silver
- Star Rating: 3 stars
- Fund Manager: Vikas Chiranewal
- Category: Flexi Cap
- Investment Style: Large Blend
- Portfolio Role: Concentrated portfolio, which varies widely to its benchmark.
- Morningstar Analyst: Nehal Meshram
We believe the fund is a strong choice for investors seeking a value-driven approach with domestic and international market investing.
The fund is backed by a skilled manager, an experienced investment team, and a disciplined investment approach. In September 2016, the fund has seen some restructuring in the investment team. Vikas Chiranewal became the lead manager while Chetan Sehgal stepped down to take over the position as director of global emerging-markets. However, Sehgal continues to share research responsibilities and both the managers are well-ingrained in Mark Mobius’ investment philosophy. They have a collaborative team culture that leverages the experience of the Templeton Emerging Markets team, which follows the value style of investing to produce comprehensive research insights.
Templeton has consistently applied its disciplined, bottom-up, long-term, value-driven approach while investing. The team tries to identify value through rigorous fundamental analysis of a company's business to determine its economic worth based on projected future earnings and cash flow. The team also incorporates qualitative parameters such as management track record, corporate governance standards, and strengths in its analysis. The fund managers have executed the strategy well; however, there are periods of relative underperformance. One key risk for value funds is buying cheap stocks that continue to get cheaper, that is, value traps. In addition, investing in foreign equities diversifies the portfolio but also carries currency risk. Moreover, funds of this nature can experience prolonged periods of underperformance when the strategy is out of favour. However, the fund has managed to fare well as compared with its benchmark S&P BSE 200 and some of the domestic dividend yield funds.
Overall, we are impressed with the disciplined approach and the solid execution of the strategy. We still see a fair bit of continuity, with Chiranewal having the necessary experience. The time-tested strategy builds our conviction that the fund has the capability of outperforming over the long run and hence we have retained the Morningstar Analyst Rating of Silver.
Templeton India Growth
- Analyst Rating: Silver
- Star Rating: 3 stars
- Fund Manager: Vikas Chiranewal
- Category: Flexi Cap
- Investment Style: Large Blend
- Portfolio Role: Manager maintains concentrated portfolio and goes heavily off-benchmark if the fundamentals remain strong.
- Morningstar Analyst: Nehal Meshram
Fund’s distinctive investment process and manager’s skilled execution are its defining factors.
There are various aspects that distinguish this fund from similar offerings. The most appealing is its investment process. Drawing from Mark Mobius’ value investing philosophy, the process focuses on buying growth stocks that are trading at a significant discount to their earnings potential. Hence, in-depth research is the core to the process. The investment team scouts for stocks that are cheaper than their peers, the broader market, and historical valuations, assuming improving prospects. While evaluating companies, analysts study five years of data and make five-year projections. The price target incorporates both the best- and worst-case scenarios for a company. The team also incorporates qualitative parameters such as management track record, corporate governance standards, and strengths in its analysis.
The AMC has seen some restructuring in the investment team last year. Vikas Chiranewal became the lead manager, while Chetan Sehgal stepped down to take over the position as director of global emerging-markets. However, Sehgal continues to share research responsibilities. They have a collaborative team culture that leverages the experience of the Templeton Emerging Markets team, which follows the value style of investing to produce comprehensive research insights.
The fund managers have executed the strategy well; however, there are periods of relative underperformance. One key risk for value funds is buying cheap stocks that continue to get cheaper, that is, value traps. Moreover, funds of this nature can experience prolonged periods of underperformance when the strategy is out of favour.
Overall, we are impressed with the disciplined approach and the solid execution of the strategy. We still see a fair bit of continuity, with Chiranewal having necessary experience. The time-tested strategy builds our conviction that the fund has the capability of outperforming over the long run and hence we have retained the Morningstar Analyst Rating of Silver.
