One-year value funds miss the returns bus despite bull run

According to Value Research, the biggest loser among value funds now are those with one-year tenor

Value funds of one-year tenor falling under the equity category continue to be under-performers due to over exposure to sectors like IT and pharma that have missed the ongoing bull-run in the markets.

Fund houses like Birla Sun Life, ICICI Prudential, Quantum, Franklin Templeton and Parag Parikh Financial Advisory Services (PPFAS) are only into value funds.

Value funds invest in sectors with attractive valuations though one particular company in the sector may not be doing well due to some external factors like changes in taxation or government norms.

According to data from mutual fund research firm Value Research, the biggest loser among the value funds now are those with one-year tenor, while those three to five years tenor are not that bad.

ICICI Pru's value fund has given an annual return of 12 per cent against 21 per cent return that the BSE 500 index in the one-year ending June this year. However, the same fund in the previous three years has given higher returns than the Sensex and Nifty at 14 per cent against 12 per cent, and the five-year fund has returned 22 per cent against 16 per cent by the indices, according to the data collated by Value Research.

In the case of PPFAS MF, it has given a return of 18 per cent for one-year duration against 21 per cent given by the Nifty. Again the same fund has given higher returns with three-year duration has given 13 per cent against 12 per cent by the Nifty.

When contacted ICICI Prudential executive director and chief investment officer S Naren defended his fund offering saying value are safer bets for retail investors as they are insulated from daily market volatilities.

Quantum MF's value fund with an asset base of Rs 780 crore, has been under-performing for the past six months.

"Our value fund has underperformed by over 500 basis points," Quantum MF chief executive Jimmy Patel told PTI, adding, "but we feel that the market is overheated now as the fundamentals are not strong and hence it's not the right time to enter with a one-year horizon..."

Rajeev Thakkar, chief investment officer at PPFAS Mutual Fund, said value investing has two models -- buying cheap stocks, and the other is buying quality stocks at reasonable prices.

"But in both cases, the common factor is to not to overplay. Given this, in a bull market there is difficulty in identifying new ideas," he said, adding "the fund has given 19.31 per cent CAGR return since inception with the NAV doubling in under four years."

"Value funds always suffer in a growth-oriented market as these funds don't do well in a rising market," Value Research chief executive Dhirendra Kumar said, adding "to benefit from value fund, one has to remain invested to a full market cycle.