The Hindu Business Line : Theme funds

Choosing a theme fund is not always a safe bet. Fund selection in thematic offerings is as crucial as in diversified funds as the performance of funds can vary widely even within the same theme.

Suresh Parthasarathy

Diversified funds are usually considered safer bets than sector and thematic funds. But if you are an informed investor with the ability to take a call between sectors and time them well, you can reap a rich harvest through thematic funds.

The market has not witnessed a secular bull run in the past year; but some theme funds fared better than the market.

For instance, pharma funds — with a average return of about 6.4 per cent for one year have beaten diversified funds, which now have a one year negative return of 8 per cent.

Over a two-year period, banking funds have delivered a 19 per cent return on an annualised basis, against the diversified fund return of 9 per cent.

Some of the infrastructure funds recorded returns as high as 100 per cent in 2007, before the January correction. But if they outperform the market when the theme is in vogue, theme funds can also decline quite sharply.

However, selection of a theme fund is as crucial as selection in diversified funds. Fund performance has shown big divergence even within the same theme.

For a one-year period, Reliance Diversified Fund tops the chart in infrastructure funds with a return of 24 per cent, whereas Birla Sun Life Basic Industries saw its NAV lose 26.6 per cent for the same period.

Banking stocks that withstood early part of correction gave way after the recent increases in the interest rates.

In this theme, Reliance Banking Fund clocked a return of 4.5 per cent while its peer UTI Banking Fund generated a negative return of 6 per cent. Within the IT sector funds, DSPML Technology Fund fared best with a negative 9.5 per cent return; Kotak Technology has shed 29 per cent over the year.

The more mature FMCG sector contained downside well and is one of the few sectors that has registered a positive return in the past year.

But this sector too saw divergence, with Magnum SFU FMCG Fund’s NAV growing by 7 per cent, while ICICI Pru FMCG moved other way and shed 6 per cent.

The interest rate-sensitive automobile sector witnessed yet another year of poor performance.

This is the only sector that has generated a negative return (minus 2 per cent) even over a three year holding period.

During the past year, UTI Transportation and Logistics Fund lost 16.2 per cent while the JM Auto Sector Fund has shed 17.2 per cent.

A select set of stocks performed well in the pharma space. Good stock selection has done the trick for some of the theme funds here — JM Healthcare Fund has rewarded its investors with a 22 per cent return while Magnum SFU Pharma Fund has lost 4 per cent.

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