The Hindu Business Line : Auto, FMCG funds deliver uninspiring numbers in last six months

If you had forgotten all those warnings about sector funds, here is your chance to revisit them. Consider funds dedicated to auto and FMCG, two sectors that have not exactly delivered inspiring numbers in recent times, and you will know why we are asking you to recall something that is best not disregarded.

For the record, both categories have turned in a shoddy performance, especially so in the past few months. Check their six-month scores and you will realise precisely what we are talking about. Auto funds have given a negative 10 per cent, while FMCG funds have a paltry 0.5 per cent to their credit.

Sector funds, as pundits will no doubt tell you, can break or make your portfolio.

In good times, they can really propel your overall returns forward – often very convincingly. In bad times, and believe us, bad times can come before you can bat an eyelid, they can ruin what otherwise looks like a smart choice of funds.

Banking funds sizzle

Let us cite an example – again on the basis of six-month figures. Banking funds, which have on an average provided 19.7 per cent, have actually led the list of winners. This, in reality, puts them well ahead of diversified equity funds, the category that is supposed to have invested in a range of sectors so as not to depend too heavily on a particular segment of the economy.

Diversified funds have, for their part, given a little less than 11 per cent. These figures, pertaining to July 6, have been compiled by Value Research.

Where does this leave the other sectoral plays? Well, pharma funds, with over 8 per cent, have not done too badly compared to their auto/FMCG counterparts. However, tech funds have in turn provided a pedestrian 4.5 per cent.

If you turn to specific instances, Reliance Banking Fund (which has given a solid 81 per cent in the one-year period ending July 6) has heavy investments in leading financial services stocks. SBI, in particular, accounts for a high 19 per cent-plus of its assets as on June 30. Some of its other larger holdings are JM Financial, ICICI Bank, Bank of Baroda and Federal Bank. In each case, the contribution to the fund’s assets is 6-8 per cent.

UTI MF’s banking sector product, which has delivered over 78 per cent in the past year, has marked exposure to SBI and ICICI Bank, two of the largest banking institutions in the country. Together, the two make up 45 per cent of the fund’s portfolio. Some of the other significant contributors are UTI Bank, HDFC Bank and HDFC.

The wide difference between the two extremes – 19 per cent for banking funds and a negative 10 per cent for auto – lead us to believe that sector funds are not really the common investor’s best friend. Chosen wisely and timed well, these can do him a great favour. But a wrong selection can truly damage his case, perhaps even negating the effect of all the good things achieved by diversified products.

Stick to the middle path, is what many experts will well tell you. In other words, broad-based funds are what the average player probably needs most. These seek to spread their risks over sundry areas. Take a look at the portfolios of the leading funds, weigh their past performance and then make your choice. With a little luck, you can win.

Feedback may be sent to nilanjan@thehindu.co.in

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