From being one of the most revered funds in the industry, Franklin India Bluechip Fund lost its way.
It has underperformed consistently in the past three calendar years, which has severely dented its long-term track record. In fact, its current rating is just 2 stars. (The Star Rating is a purely mathematic measure of a fund's risk-adjusted return, relative to similar funds. It is backward looking and quantitative.)
The Analyst Rating has dipped from Gold to Bronze. This is the analyst’s conviction of the fund ability to outperform its peers. It is a subjective, forward looking rating.
The disappointment
Our conviction for the Gold rating stemmed from Radhakrishnan’s experience, the backing of a stable investment team and a true blue large-cap approach. However, the fund has fallen short of the expectations we have for Gold-rated funds.
Despite being managed by one of the best fund managers in the industry, Anand Radhakrishnan, this fund has been a victim of unfavourable market conditions and the manager’s valuation-conscious approach going out of favour.
The true-blue large cap approach also led the fund to underperform its peers that invested a portion of their portfolio in mid-caps when they were in favour. Its underperformance in 2013, 2014, and 2017 are cases in point.
The manager also didn’t invest in index heavyweights such as Reliance and TCS given valuation concerns. This proved counterproductive as these stocks continued to perform well.
While the team’s contrarian call on the telecom sector couldn’t unlock its true potential, investments in Yes Bank and Vodafone Idea proved to be wrong decisions. Moreover, delay in taking timely corrective measures in the portfolio made matters worse for the fund.
Hence, in our latest review, we assigned it a Bronze.
The replacement
Manager Anand Radhkrishnan, who helmed this fund since April 2007, took a back seat here as its mantle was transferred to Roshi Jain on June 2019.
This is in line with the team’s belief that the framework of the large-cap category requires the fund to be run with an aggressive investment approach.
Roshi is known for her aggressive approach towards investing. Radhakrishnan is a seasoned manager and one of the best in the industry, but inherently he is not an aggressive manager. Hence, it became tougher for him to take very aggressive bets, which the team believed was the need of the hour.
Roshi is an old hand at Franklin Templeton Mutual Fund, having joined the fund house in May 2005 as a research analyst. She gained considerable experience as a research analyst, which she uses to good effect in managing funds. She has been running funds as a lead manager since 2012 and is well-ingrained into Franklin’s thought process and investment style. Jain has a strong support system around her of experienced managers and research analysts.
She is at home with her investment style, but she must make a mark for herself in the large-cap category where she is competing with some of the best managers and strategies in the industry.
The strategy
The strategy has not been able to deliver desired results as the valuation-conscious approach has been out of favour in the Indian markets for three years now. Also, given Radhakrishnan’s relatively defensive investment approach, the execution falls short of expectations.
Now, Roshi has been entrusted with the responsibility of getting the fund back on track by plying her trademark investment style, which the fund house believes would be an apt approach in the large-cap space.
This entails investing in an unconstrained manner, taking high-conviction concentrated bets across stocks and sectors, and going against the grain if risk/reward is favourable. Though Jain is adept at running such an approach, its viability in the large-cap category needs to be evaluated.
The broader investment strategy stays consistent despite the change in manager, Roshi has transformed the portfolio as per her liking. It is now more concentrated than before. With mid-caps not a part of portfolio, Jain aims at keeping the portfolio focused and concentrated to deliver outperformance in the large-cap category.
There is an aggressive streak in her investment approach, and she doesn’t shy away from taking significant sector and stock bets.
Earlier the portfolio lacked cyclical and recovery names, which made it difficult for the fund to recover. This is an area Jain has been addressing. She has shifted the defensive part of the portfolio towards cyclicals by adding recovery financials names, cement stocks, and beaten-down discretionary sectors such as airlines and insurance.
Though insurance has done well in recent times, it was a beaten-down discretionary financial when it was added to the portfolio.
While the exposure to recovery themes should help performance over the long run, the concentrated portfolio does add an element of risk and may expose the fund to above-average volatility during market downturns.
The conclusion
The competition is intense in the large-cap category, which houses some of the best managers and strategies. Hence, the fund must reinvent itself and display the ability to deliver outperformance with a new aggressive investment approach.
The fund still has many positive attributes - an experienced manager, a stable team, and an investor centric parent - to merit a positive rating.
Hence, though the Gold rating is no longer deserving, we assign a positive Bronze rating to the fund.
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