ABSL Transportation and Logistics NFO: Should you invest?

Under the thematic fund’s space, transportation and logistics offerings have witnessed quite a few launches recently. For a basket that for years had just one focussed scheme (UTI), the last 12 months have seen three launches, viz. ICICI Pru, Bandhan (formerly IDFC) and HDFC coincided with decent returns clocked by transportation & logistics stocks in this period. The latest to join the bandwagon is Aditya Birla Sun Life (ABSL). The new fund offer (NFO) period for Aditya Birla Sun Life Transportation and Logistics Fund closes on November 10. Should you invest? Here is a lowdown.

Wheels in motion

The transportation and logistics theme covers a wide range of sectors. The transportation theme includes sectors like automobiles and auto ancillary, while the logistics theme includes sectors like ports, warehousing/supply chain, e-commerce and allied sectors. The sectors common to both themes would be shipping, railways, infrastructure and airlines.

The field of transportation and logistics presents a multitude of investment prospects. Among them are the limited market saturation of passenger vehicles, the growing ambitions of consumers driven by higher per capita income and enhanced affordability of passenger cars, substantial governmental backing for electric vehicles and expanding exports. Also, one should consider robust domestic manufacturing capabilities of automotive components and the enhancement of logistics through the increased interconnectivity of railways, roads, and ports to enhance overall mobility and efficiency.

About the fund

Transportation and logistics is a large, diversified theme comprising 20 basic industries with approximately 200 companies that form a part of the listed universe. Note existing transportation and logistics have 30-40 stocks in their respective portfolio.

ABSL Transportation and Logistics Fund aims to provide a mix of urban and rural, domestic and international opportunities. Additionally, innovation and new technologies are integral components of this theme. As a thematic fund, 80-100 per cent of the portfolio will be in the transportation and logistics theme. Up to 20 per cent can be outside of the mandated theme.

According to the fund house, despite the improving growth outlook, valuations in the auto and logistics sector are a shade below the long-term averages. This may present a lucrative opportunity.

The equity portion of the portfolio will follow growth at a reasonable price (GARP) and can invest across various sectors within the theme. Investors can expect a blend of top-down and bottom-up approaches for portfolio construction.

The fund will be benchmarked to Nifty Transportation & Logistics TRI, which counts Maruti Suzuki, M&M, Tata Motors, Adani Ports and SEZ, Bajaj Auto, Zomato, Eicher Motors, Hero MotoCorp, TVS Motor and Tube Investments of India as top holdings. This index was launched in Feb-2022. Hence, older index return data is back-tested.

Stock exposure

The existing four funds in transportation and logistics theme can be divided into schemes with large-cap dominance (UTI and ICICI Pru) and one substantial allocation to mid & small-caps (HDFC and Bandhan). It would be interesting to see the m-cap split for the ABSL fund.

Popular transportation and logistics stocks such as Maruti Suzuki (385 schemes), M&M (313), Tata Motors (290), Bajaj Auto (208), Eicher Motors (169), Hero MotoCorp (195) , TVS Motor (207), Interglobe (197), Zomato (194), Bosch (131), Samvardhana Motherson (171) and CONCOR (129) are already extensively present in many equity funds. So, investors should consider whether making an extra allocation to this theme has justifiable merit.

Typically, any transportation and logistics funds will be largely an automobile and auto ancillary-stocks linked fund, with logistics stocks being a much smaller play. The existing four funds have 85-90 per cent allocation to just three sectors, making them extremely concentrated baskets.

Our take

Considering the cyclical nature of sectors comprising the overarching theme, the precise timing of entering and exiting investments is a critical factor for investors, albeit a challenging one.

With the exception of UTI Transportation & Logistics, which boasts a strong and extensive history of delivering returns, the remaining three options lack a significant track record.

For retail investors, it might be prudent to wait for ABSL Transportation and Logistics to establish a track record before considering exposure, despite the fund house’s reputation and the apparent promise of the theme.

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