The Hindu Business Line : Sector funds fare better than diversified funds

Diversified equity funds are usually considered to be a better bet than sector-specific and theme funds in a volatile market. But the trend has been quite different during the recent market meltdown.

Sector and theme funds, focused on FMCG, healthcare and IT, have managed to contain the decline in their NAV to levels below that of diversified equity funds over the past three months. Compared with the average decline of 27 per cent recorded by diversified equity funds, pharma, FMCG and IT sector funds lost only 11 per cent, 13 per cent and 20 per cent respectively.

Defensive bet

While their defensive nature has helped FMCG stocks to outperform, IT stocks have managed to weather the recent meltdown, because they had already been beaten down, before this correction started. The average erosion on the NAV of infrastructure theme funds was 27 per cent, matching diversified funds. Banking sector funds were the only exception to the trend, losing 31 per cent in value over the past three months.

However, investors should note that there has been a big gap between the best and worst performers within each sector or theme. Among the infrastructure funds, while ICICI Pru Infrastructure lost 24 per cent in value over the 3-month period, the worst performer Taurus Infra Tips lost 33 per cent.

Within healthcare, while JM Healthcare lost only 6.6. per cent, Magnum Pharma Fund saw over 18 per cent shaved off its NAV. Among the IT sector funds, Franklin Infotech saw an 8.8 per cent decline, while Kotak Tech lost over 27 per cent.

Though sector and theme funds have fared reasonably in the past three months, diversified equity funds continued to score over many of them on a 1-year basis.

The one-year returns on diversified funds stand at 20 per cent, well above sector funds dedicated to pharma (less than 1 per cent), FMCG (17 per cent) and IT (negative 21 per cent). Surprisingly, banking and infrastructure funds, worst hit during the recent declines, remain the best performing on a one-year basis, with returns of 35 and 25 per cent respectively.

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