Fund Analysis: Franklin India Prima Plus

The fund distinguishes itself from the competition by not investing in momentum stocks and solely following fundamental investment approach.
By Chintamani Dagade |  01-06-09 | 
 

Management

Portfolio manager Sukumar Rajah manages the Franklin India Prima Plus since its inception in September 1994. There are seven research analysts currently, who support all the equity funds with each covering either one large sector or one-two smaller sectors. Each research analyst covers 50-60 stocks; this is a large number as we believe 30-40 stocks is a manageable list.

Each research analyst has overall 5-10 years of experience with average five years of experience at the Franklin Templeton Mutual Fund itself. We believe the mutual fund has strong investment management team with the portfolio manager witnessing a full market cycle and around 15 years of total experience.

Strategy

The fund invests 75% of its corpus in large-cap stocks and the rest in mid-cap stocks. The portfolio manager identifies wealth generating companies based on their robust business model, strong competitive advantage, sound corporate governance and better return on equity. The fund distinguishes itself from the competition by not investing in momentum stocks and solely following fundamental investment approach. Sukumar invests only in high conviction stocks with low risk and high liquidity.

He would buy 6-10% of the fund’s corpus in stocks, which meet these parameters. The portfolio manager picked up certain stocks in their early days like Infosys Technologies, HDFC, etc. based on better EVA (Economic Value Added). The portfolio manager also prefers stocks with low beta in order to limit the volatility in performance.

The portfolio manager relies up to 10-20% on external analysts for stock ideas generation process and evaluates quality of research based on voting by analysts and portfolio managers on quality of research and other parameters.

We think the fund follows strong research and idea generation process and there are sound internal mechanisms built to identify potential risks areas, which might stem from portfolio concentration, beta, etc.

Performance

Thanks to its strong stock selection approach, the fund outperformed its peers and its 10-year trailing return through April 2009 was better than 77% of its category peers. The fund was rated four stars by Morningstar during the 10-year period through April. It was rated at “Above average” in terms of return rating. On the risk front, the fund performed well too. For the 10-year period, the fund’s Morningstar risk rating was “Average.”

Favorable sector and strong stock selection approach boosted the fund’s performance during the last five-year period. The portfolio manager increased exposure to the energy sector from low digits in early 2008 to high double digits in April 2009, primarily to oil and marketing companies like Hindustan Petroleum Corp and Bharat Petroleum Corp as these stocks were available at deep valuations. He increased holdings in Reliance Industries, owing to increasing traction in gas business, global competitive advantage and higher ROE.

The portfolio manager cut exposure to the materials sector from double digit levels in 2007 to single digit levels in 2008, owing to a decline in commodity prices. He also cautiously pared holdings in the industrials sector as valuations stretched and domestic capex cycle peaked out in late 2007, which helped the fund’s performance as industrials stocks suffered in 2008.

The fund manager increased exposure to the consumer staples sector in early 2008, particularly to Nestle and Unilever, which the portfolio manager believes will benefit from increased rural income expansion.

Because of the fund’s active stock selection approach and exposure to mid-cap stocks, the fund’s turnover ratio was higher at 124.6% for one-year period through April.

We believe the fund manager’s sound understanding of economic cycles, favorable sector selection and disciplined investment approach has helped the fund to outperform its peers and therefore, this fund can be considered for long-term wealth creation. During the five-year period through April 2009, this fund is rated five stars by Morningstar.

Stewardship

We are pleased by the portfolio manager's investment here. Sukumar's entire equity investments lie in this fund.

Costs

This fund’s 2.0% annual expense ratio is lower than the median of 2.2% of large-cap category peers and therefore performed well on cost front too.

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Securities mentioned in this article
Type Name Price(INR) Change(%) Date
Fund Franklin India Equity Fund Growth  
  519.8673 0.5866 03/07/2020
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