Diversification, focus on large-caps have led to better returns

FUND PICK: Franklin India Prima Plus

Top-down, volatility
Launched in September 1994, Franklin India Prima Plus Fund has been ranked CRISIL Fund Rank Two (top 30 percentile of the peer set indicating good performance) in the diversified equity category under the CRISIL Mutual Fund Ranking for the quarter ended March. The fund has been in the top-30 percentile of the peer group for the past four quarters. The fund is jointly managed by Anand Radhakrishnan and R Janakiraman and had average assets under management (AUM) of Rs 1,953 crore for the quarter ended March.

The investment strategy of the fund outlines it would follow a blend of value and growth style of investing. Further, it intends to follow a bottom-up approach to stock-picking and choose wealth-creating companies across the sectors.

Performance
The fund has delivered superior returns and outperformed both its benchmark (CNX 500 Index) and the category average over the one-, three-, five-, and seven- and ten-year time frames. Over the past five years, the fund has returned 9.31 per cent annualised gains compared to 4.58 per cent and 7.13 per cent by its benchmark and category, respectively.

An investment of Rs 1,000 since inception (September 29, 1994) of the fund would have appreciated 25 times to Rs 24,718 as on June 04, 2013. An equal amount invested in the benchmark would have returned a much lower Rs 4,275, while the category would have yielded Rs 13,668 during the same period.

Even on a risk-adjusted basis, the fund has performed well, which is reflected in a higher Sharpe ratio of 0.23 compared to negative 0.07 for the category, over the past three years.

A monthly investment of Rs 1,000 under a systematic investment plan (SIP), over seven and ten years till June 04, 2013 would have grown to Rs 1,21,017 and Rs 2,78,160, i.e., an annualised return of 10.46 per cent and 16.25 per cent, respectively. A similar investment in the benchmark would have grown to Rs 1,04,722 and Rs 2,08,206 in the same periods, yielding 6.33 per cent and 10.76 per cent, respectively.

Portfolio diversification
The scheme intends to invest in a diversified portfolio of primarily large-cap stocks with a marginal small- and mid-cap exposure. The average equity exposure to CRISIL-defined large-cap stocks (top-100 stocks based on average market capitalisation on the National Stock Exchange) is 73 per cent over the past three years. The fund has actively managed its equity exposure to large-cap stocks over the past three years to reduce volatility of the portfolio. The fund increased its exposure to large-cap stocks to an average 76 per cent during March 2011 to May 2012 when the markets were volatile. The fund has maintained an average equity allocation of 95 per cent during the three-year period ending April 2013 but reduced it to 90 per cent in September 2011 when market volatility was at peak.

The fund was well-diversified and held an average of 54 stocks over the past three years, with the top-10 stocks accounting for 39 per cent of the portfolio. The category held 46 stocks during this period, with the top-10 stocks constituting 45 per cent of the portfolio. The fund is well-diversified at the sector level as well, with its top-five sectors constituting 51 per cent of the portfolio, compared to 56 per cent for the category during the three-year period.

Banks have been the most-favoured sector over the past three years, with an average 17.5 per cent exposure followed by telecom services (9.4 per cent) and software (8.9 per cent). The fund has been overweight on banks, telecom services and pharmaceuticals compared to the category during the same period. This has mainly contributed to the fund's excess returns over the benchmark. Some of the stocks retained by the fund over the past three years, which helped outperform the CNX 500 Index, are Idea Cellular, Kotak Mahindra Bank, Bosch and HDFC Bank.

CRISIL RESEARCH