Gold and Silver rated funds of 2020

By Morningstar |  30-12-20 | 
 

The Morningstar Analyst Rating for funds is a forward-looking analysis of a fund. The Analyst Rating does not express a view on a given asset class or peer group; rather, it seeks to evaluate each fund within the context of its objective, an appropriate benchmark, and peer group.

Our analysts evaluate funds based on three key areas that we believe are crucial to predicting the future success of funds: People, Process and Parent. Based on the scores arrived for these pillars, analysts assign Gold, Silver, Bronze, Neutral, and Negative to funds. The top ratings of Gold and Silver indicate that our analysts expect the rated investment vehicle to produce positive alpha relative to its Morningstar Category index over the long term, meaning a period of at least five years. Read the detailed methodology here.

Here are funds that were assigned analyst ratings of gold and silver in 2020. 

Aditya Birla Sun Life Frontline Equity

  • Category: Large Cap
  • Star Rating: 3 stars
  • Analyst Rating: Gold
  • Analyst: Kavitha Krishnan
  • Date of Analysis: June 2020
  • 3 year CAGR: 5.88%
  • 5 year CAGR: 10.72%

Fund manager Mahesh Patil considers the fund house’s investment universe and the IISL Nifty 50 Index when constructing the portfolio. Typically, he will invest in companies that display strong earnings growth potential, while focusing on parameters such as Return on Equity, or ROE, and Return on Capital Employed, or ROCE. He makes use of relative valuation measures, such as Price to Equity, or P/E, Price to Book Value, or P/B, Enterprise Value to Earnings Before Interest Tax, Depreciation and Amortisation, or EV/EBITDA, vis-a-vis comparable peers when selecting stocks. That said, he isn’t valuation-conscious in the strictest sense. The investment strategy is uncomplicated, but it acquires an edge thanks to Patil’s execution. 

DSP Midcap Fund

  • Category: Midcap
  • Star Rating: 4 stars
  • Analyst Rating: Silver
  • Analyst: Himanshu Srivastava
  • Date of Analysis: June 2020
  • 3 year CAGR: 6.81%
  • 5 year CAGR: 13.57%

Fund manager Vinit Sambre combines absolute and relative valuation measures when picking stocks in the small/mid-cap space. He scouts for companies that have sustainable competitive advantages over their peers and dominant market shares in their industries. He also tracks company management decisions and meets with company management. He invests only when he is comfortable with the management’s assumptions, forecasts, and capabilities. Given the bias for mid-cap stocks, he adopts a buy-and-hold approach while constructing the portfolio. While the fund is likely to gain more than a typical peer in up markets, it also runs the risk of faring worse in down and momentum-driven markets. 

Franklin India Prima Fund

  • Category: Midcap
  • Star Rating: 4 stars
  • Analyst Rating: Silver
  • Analyst: Himanshu Srivastava
  • Date of Analysis: December 2020
  • 3 year CAGR: 3.15%
  • 5 year CAGR: 10.78% 

Fundamental research forms the crux of the investment process. The coverage list for small/mid-caps is built by the portfolio managers in conjunction with the analysts. The investment team places a strong emphasis on qualitative aspects such as managerial strengths and corporate governance; also, rigorous business analysis is performed to understand the growth prospects of the industry, its competitive landscape, entry barriers, and scalability prospects. 

Franklin India Smaller Companies Fund  

  • Category: Smallcap
  • Star Rating: 3 stars
  • Analyst Rating: Silver
  • Analyst: Himanshu Srivastava
  • Date of Analysis: December 2020
  • 3 year CAGR: -2.69%
  • 5 year CAGR: 8.02% 

When selecting companies, the investment team places a strong emphasis on qualitative aspects such as managerial strengths and corporate governance standards; also, rigorous business analysis is performed to understand the growth prospects of the industry, its competitive landscape, entry barriers, the company’s market share, and scalability prospects of the business, among others. Analysts construct sector-based model portfolios comprising the best ideas from stocks in their investment universe, which in turn is compiled by the research head to construct a diversified small/midcap portfolio.

Franklin India Equity Fund

  • Category: Multi Cap
  • Star Rating: 3 stars
  • Analyst Rating: Silver
  • Analyst: Himanshu Srivastava
  • Date of Analysis: March 2020
  • 3 year CAGR: 4.64%
  • 5 year CAGR: 9.33%

The skilled management team’s participation aids the process in no small measure. Fund manager Anand Radhakrishnan seeks companies with clean balance sheets. He looks for steady businesses with sustainable competitive advantages that can generate healthy ROEs and ROCEs. He focuses on profitability using Economic Value Added, or EVA, as a measure. Despite the apparent growth focus, it would be wrong to infer the approach isn’t distinctive. Indeed, a contrarian streak is perceptible in the manager’s stock picks.

HDFC Equity Fund  

  • Category: Multi Cap
  • Star Rating: 2 stars
  • Analyst Rating: Silver
  • Analyst: Himanshu Srivastava
  • Date of Analysis: June 2020
  • 3 year CAGR: 3.21%
  • 5 year CAGR: 9.86%

Fund manager Prashant Jain adopts a hands on approach to research, to get an in-depth understanding of the business and ferret out companies with robust business models, clean balance sheets, and competitive strengths. Though the bottom-up style is clearly integral to Jain’s investment style, the top-down isn’t ignored either. Both relative and absolute valuation methods are used to pick stocks. The investment style can be broadly described as growth at a reasonable price. Though Jain is mindful of the benchmark index weights here, he is not benchmark-aligned. Hence, he doesn’t shy away from taking underweight/overweight positions at sector or stock level when he spots opportunities.  Jain’s valuation-conscious approach, and his willingness to be patient with his high-conviction yet underperforming holdings, contributes to this being a fairly unique process, with the potential to deliver superior performance over the long haul. But that is tagged with inherent biases along with higher volatility.

HDFC Top 100 Fund

  • Category: Large Cap
  • Star Rating: 2 stars
  • Analyst Rating: Silver
  • Analyst: Himanshu Srivastava
  • Date of Analysis: June 2020
  • 3 year CAGR: 4.54%
  • 5 year CAGR: 10.20%

Although fund manager Prashant Jain is mindful of benchmark weights and invests largely in IISL Nifty 100 stocks, that is not to suggest that he is a closet indexer. He takes significant exposure versus the benchmark on stocks and sectors to deliver outperformance. Prashant Jain’s long-term investment approach, the policy of staying fully invested, and backing his convictions when the strategy is out of favour, has often delivered pleasing results over the long term. However, it has also resulted in the fund’s underperformance in 2013 and 2015. The portfolio is poised to benefit from the turnaround in the market and economic environment but will continue to witness challenges until the trend reverses. 

ICICI Prudential Multi-Asset Fund  

  • Category: Multi Asset
  • Star Rating: NA
  • Analyst Rating: Silver
  • Analyst: Nehal Meshram
  • Date of Analysis: March 2020
  • 3 year CAGR: 5.02%
  • 5 year CAGR: 10.83%

The fund follows a disciplined investment process and an active portfolio management approach. Lead manager Sankaran Naren follows an aggressive contrarian strategy and is willing to buy companies that are in the midst of a short-term crisis or transitions but remain fundamentally sound. He continues to dynamically manage the equity and debt portion based on market valuation and maintains the gross equity level of 65%.  The strategy is complex, and the success of the fund depends on skilled execution; on that count, we believe Naren can make the process work.

Mirae Asset Emerging Bluechip

  • Category: Large & Mid Cap
  • Star Rating: 5 stars
  • Analyst Rating: Silver
  • Analyst: Nehal Meshram
  • Date of Analysis: October 2020
  • 3 year CAGR: 9.88%
  • 5 year CAGR: 17.27%

The investment philosophy centres around high-quality businesses with good credentials. The team combines fundamental analysis with quantitative screens, seeking firms with high earnings growth potential, strong balance sheets, and high cash flow. The team also looks for price value gap in stock selection and considers such metrics as P/E, P/B, and EV/EBITDA. The team further filters and invests in companies that generate EBITDA/cash flows of around Rs 100 crore. It avoids smaller companies as the idea is not to buy in at an early stage but to invest in evolving mid-caps that have the potential to become large caps. The strategy holds a well-diversified portfolio with a long-term perspective, helping the fund outperform over the long haul.

© 2020 Morningstar. All rights reserved. The Morningstar name is a registered trademark of Morningstar, Inc. in India and other jurisdictions. Research on securities, referred to for the purpose of this document as “Investment Research”, is issued by Morningstar Investment Adviser India Private Limited, which is registered with SEBI as an Investment Adviser (Registration number INA000001357), providing investment advice and research, and as a Portfolio Manager (Registration number INP000006156). For the complete disclaimers, click here.

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