Conservative investors can buy units of Birla Sun Life Frontline Equity Fund (BSL Frontline), given its ability to contain losses during market downturns besides reasonable upside in rallies.
The fund surpassed the returns of its benchmark, the BSE 200 Index, over one, three- and five-year timeframes. Its 7.8 per cent return in the last five years places it in the top quartile of large-cap oriented funds, categorised by returns.
BSL Frontline is a large-cap oriented fund, investing across sectors in line with the BSE 200 Index. This large-cap bias has endowed the fund with two advantages: One, an ability to contain downsides. For example, during the market meltdown from January 2008 to March 2009, while the BSE 200 index lost 64 per cent of its value, BSL Frontline limited the fall in its NAV (Net Asset Value) to 55 per cent.
Two, though the fund has not always outperformed the benchmark in market upswings, it boasts of consistency in performance. On a rolling return basis, the fund’s annual return has outperformed its benchmark 94 per cent of the time in the last five years.
Hence this fund best suits investors with a limited appetite for risk and with moderate return expectations.
Performance and Strategy
Over one-, three- and five-year time frames, BSL Frontline made returns of 7.3, 6.9 and 7.8 per cent, respectively. Though the fund underperformed the benchmark in recent market upswings, it has a record that compares favourably with peers such as HDFC Top 200, Franklin India Bluechip and Reliance Vision.
For example, in the rally between March 2007 and January 2008, while the BSE 200 delivered about 84 per cent gains, the fund returned only about 76 per cent. But this was higher than the 74 per cent rise clocked by HDFC Top 200 and 66 per cent increase in the NAV of Franklin India Bluechip. Again, in the March 2009-November 2010 rally, the fund underperformed both the benchmark and HDFC Top 200, but bettered the other two peers.
Being large-cap focused could be one reason the fund could not benefit from the 2007 rally as this was led predominantly by mid-cap stocks.
However, this bias towards large-caps seems best suited at this point in time for a couple of reasons: one, these companies are less hurt in a high interest rate scenario; two, many large-cap stocks fell more than mid-caps in the last correction and offer attractive valuations in relation to their earnings growth. Similarly, in the 2009-10 rally, the fund held up to 19 per cent in cash, thus containing the upside.
Cash holdings, though, have come down substantially in the last six months, from 8-11 per cent between July 2011 and January 2012.
As of July 2012, Birla Frontline has a portfolio of 62 stocks, of which 47 are large caps (stocks with market capitalisation of more than Rs 7,500 crore).
These stocks comprise about 85 per cent of the total holdings. Banks, consumer non-durables and software have remained the top sector bets in recent times.