Fund Pick: Franklin India

High growth companies' Fund delivering superior returns

Launched in July 2007, Franklin India High Growth Companies Fund has been ranked CRISIL Fund Rank 1 (top 10 percentile of the peer set, indicating very good performance) in the diversified equity category under the CRISIL Mutual Fund Ranking for the quarter ended September. The fund, managed by R Janakiraman and Roshi Jain, has been ranked in the top 30 percentile since December 2012. Its average assets under management for the quarter ended September stood at Rs 810 crore.

Investment strategy

The fund follows a mix of top-down (macro analysis to identify sectors) and bottom-up (micro analysis to pick stocks within these sectors) approaches. It focuses on high-growth companies which tend to increase earnings at a fast pace and offer the best trade-off between growth, risk and valuation.

Performance

The fund has delivered good returns and outperformed both its benchmark (CNX 500 Index) and the category average through the one-, three-, five- and seven-year timeframes (see chart). Through the past five years, the fund has returned 18.3 per cent annualised gains, compared with 9.4 per cent and 13.9 per cent by its benchmark and the category, respectively. Even on a risk-adjusted basis, the fund has performed well, which is reflected in a higher Sharpe ratio of 1.8, compared with the category’s 1.1 and benchmark’s 0.8 through the three years ended October 7, 2014. During the same period, the fund (16.8 per cent) was also less volatile than the benchmark (19.1 per cent). Monthly investments though a systematic investment plan (SIP) have also yielded good returns through the past seven years.

Portfolio diversification

The average equity exposure to CRISIL-defined large-cap stocks (top 100 stocks, based on average market capitalisation on the National Stock Exchange) has been 52 per cent through the three years ended August; the rest is invested in small and mid-cap companies. For the same period, the cash component of the scheme has been 7.5 per cent.

Through the past three years, the fund held an average of 41 stocks, compared with 45 held by peers in the category. The scheme’s top 10 stocks accounted for 47 per cent of the portfolio, in line with that of the category. The fund is well diversified at the sector level, too, with its top five sectors accounting for 57 per cent of the portfolio, compared with 59 per cent for the category during the three-year period.

Through the three years ended September, the fund has been overweight on the pharmaceuticals and automobile ancillaries sectors, compared to the category. CNX Pharma and CNX Auto have given 34.7 per cent and 33.8 per cent returns, respectively, versus CNX 500’s 17.3 per cent. In the past three years, the fund has held 42 per cent of the portfolio for at least 24 months. Some of the stocks retained by the fund that helped outperform the CNX 500 Index are Amara Raja Batteries, Axis Bank, Pidilite Industries (exited in May this year), IPCA Laboratories, JK Lakshmi Cement and Torrent Pharmaceuticals.

CRISIL Research