Unit holders of Franklin India Opportunities can exit the fund. An unwieldy portfolio and focussed bets on sectors that turned out to be underperformers dragged its performance.
The fund's three-year returns of 14.4 per cent just about matched the benchmark BSE 200's performance but lagged peers significantly. Its five-year return of 2.3 per cent, compounded annually, was marginally lower than the benchmark.
Strategy
Franklin India Opportunities seeks to take either defensive or aggressive strategies based on the opportunities present at that point in time. Its top sector holdings of finance and energy are not defensive. But it has tried to mitigate any risk by holding more large-cap stocks. Stocks with market capitalisation of over Rs 10,000 crore account for 80 per cent of the portfolio.
But a large-cap focussed fund from the same stable - Franklin India Bluechip - has delivered superior returns over a five-year period. A more compact portfolio and focussed exposure to certain stocks worked in this fund's favour. Investors who do not want any further volatility may be better off switching their holdings to Franklin India Bluechip. For other opportunity seekers, ‘Opportunity' funds from the UTI and Reliance may be more lucrative bets.
The downfall
Over the last four years Franklin India Opportunities managed to beat its benchmark only 46 per cent of the times on a rolling return basis. A fund with consistent performance typically beats its benchmark at least 60 per cent of the times.
After a good run in 2005-06, the fund's performance turned mediocre in 2007.
Some of its good sector calls like capital goods delivered well in 2007, but it missed out on the rally in oil stocks then.
In 2008, it did increase exposure to petroleum stocks, but it was too late.
This sector, together with continued high holding in capital goods and finance, pulled down its 2008 performance. The fund's NAV fell 58 per cent that year. The equity category average was 52 per cent. Funds that significantly upped their exposure to FMCG and pharma did better in 2008.
In 2009, despite following the fund house strategy of remaining fully invested, it failed to participate fully in the rally starting March 2009. Once again, sector choices did not act in its favour.
Auto, which was one of the top performing sectors that year, accounted for less than 5 per cent of the portfolio. Other top holdings, finance and petroleum products, were not the winners that year.
By 2010, redemption pressures started telling. Between April 2010 and March 2012, the fund lost 39 per cent of its assets under management. It NAV per unit fell only 2 per cent in those two years. That means the assets fell more as a result of investor redemption.
Franklin India Opportunities has also historically seen high portfolio churning. Portfolio turnover was over 200 per cent as of March 2012.
This strategy helped in the rallying market of 2005-06, where a fund had to quickly find opportunities, make the best of it and exit.
But the strategy failed to pay in a volatile market such as the one in 2011. Funds that adopted a hold strategy, in fact, did better.
A diffused portfolio could be one another reason for slack performance of the fund. Of the 70-stock portfolio, the fund held less than 1 per cent each in 30 stocks as of March 2012.