The Hindu Business Line : Franklin Flexi Cap: Hold

Investors can retain their holdings in Franklin India Flexi Cap. The fund has generated a return of 41 per cent on a compounded annualised basis since launch and has outpaced its benchmark CNX 500 by nine percentage points. Franklin India Flexi Cap has the mandate to invest across market capitalisations. As the fund can switch between large-cap and mid-caps, depending upon the market direction, it has an edge over the typical large- or mid-cap focused funds.

Empirically, large-caps tend to have an edge over small- and mid-cap stocks in a rising interest rate cycle. As there is a cyclical pattern in large-cap or mid-cap outperformance, fund managers who correctly time their entry in large-cap or mid-cap stocks can boost performance.

Within its category, the fund ranks next only to HSBC Opportunities in terms of performance. Other funds that follow a similar strategy, such as DBS Chola Multi-Cap and HDFC Premier Multi-Cap, have under performed the markets during this period.

Performance: Over the past year the fund has generated a return of 8.6 per cent, under-performing its benchmark marginally. Despite the flexibility to invest up to 70 per cent of assets in mid-caps, the fund preferred to restrict it exposure to such stocks to not more than 25 per cent over the past year. The fund outpaced the benchmark CNX 500 18 times in the past 24 months on a rolling return basis. The six occasions when it underperformed the index were in the last year.

HSBC Opportunities significantly outperformed Franklin Flexi Cap, with a return of 16.4 per cent. Better sector selection appears to have aided the former. For instance, while Opportunities had higher exposure to sectors such as IT and media, it had a lower exposure to auto ancillaries, which was prominent in Flexi Cap's portfolio.

Portfolio Overview: Franklin India Flexi Cap has 58 stocks in its February portfolio. The top three sectors accounted for 35 per cent and top ten stocks cornered 40 per cent of the assets. The fund appears to adopt a "buy-and-hold" strategy reflected in the low portfolio turnover. But the fund appears to books profits in select stocks such as SBI, Reliance Industries, Pricol, NDTV and Kansai Nerolac.

Fund facts: The fund was launched in March 2005 and the assets under management are Rs 3,364 crore. Mr K. N. Sivasubramanian and Mr Sukumar Rajah jointly manage the fund.

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