Focused funds beat other schemes in returns

Suresh P Iyengar | Updated on March 10, 2021

ICICI Prudential tops the list with 49 per cent returns, followed by Mirae Asset at 46%

The sharp rally in the equity market during the last few months has focused funds delivering much better returns than other category of mutual fund schemes.

As per the SEBI Scheme categorisation mandate, the portfolio in focused fund should be not more than 30 stocks. The objective of focused funds is to deliver higher returns by investing in a limited number of high conviction stocks with strong growth prospects.

During the pandemic, the fund manager steered the focus of the portfolio on themes that could benefit from the disruption caused by Covid pandemic. The focus was to invest in companies with strong balance sheets and better earnings visibility.

The portfolio was overweight on companies that had the potential to tide over the supply chain dislocation caused by Covid. Most of the schemes had a sizeable exposure to rural economy in order to benefit from sustained demand growth.

Top performers

ICICI Prudential Focused Equity and the recently launched Mirae Asset Focused Fund topped the list with 49 per cent and 46 per cent returns, respectively, while Franklin India Focused Fund delivered 44 per cent in last one year. The other funds in the category of Aditya Birla, Axis and SBI mutual funds have also delivered returns in the range of 25-30 per cent. Gaurav Misra, Co-Head (Equity), Mirae Asset Investment Managers India, said the portfolio of 30 stocks judiciously spread across sectors adequately mitigates unsystematic risk and helps in meeting investor objectives of risk-return.

Each investment idea in focused fund is well-represented by weight in the portfolio to adequately capture the investment opportunities on offer and it is appropriate for investors who already have exposure to the equity asset class, he added.

ICICI Prudential Focused Equity Fund has been a steady performer over long term delivering CAGR of 13 per cent and 15 per cent over three and five year.

Next Opportunities

Given the nature of the portfolio of focused funds, it is important for investors to stay invested for at least three to five years so that the benefit of investment themes play out completely.

Now that the markets have rallied and valuations are at a different zone, fund managers are tweaking the portfolio to identify the next set of winners. The flexibility to move across themes and market capitalisation and relatively smaller fund size provide ample opportunities for stock selection.

Most of the schemes in this category are now focusing on sectors that will benefit from the overall economic recovery including companies that would ride on pick-up in credit growth, recovery in capex cycle and real estate.

These funds are also eyeing large financial companies and consolidation in PSU space. The current portfolios are more biased towards financials and consumer non-durables, which was neglected sectors a year ago.

Published on March 10, 2021

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