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After outperforming its benchmark index — the CNX Bank Index — from 2010-13, Religare Invesco Banking Fund has fallen behind in the last one year, not just against its benchmark but also against other schemes in the category.
The fund has lost out on the rally in the stocks of public sector bank and non-banking companies owing to the lack of diversification in its portfolio.
Banking stocks, which took a sharp knock in the beginning of 2013-14, bounced back fervently from September 2013 on hopes of a revival in the economy and a stable new Government. While the CNX Bank Index has gone up by 60 per cent since September, the CNX PSU Bank Index shot up by 86 per cent.
Missing action on PSU stocksReligare Invesco Banking Fund clearly lost out on the huge rally in some of the large public sector banks such as State Bank of India (SBI), Punjab National Bank (PNB) and Bank of Baroda (BoB). The fund had invested close to 50-60 per cent in the top three private sector banks — HDFC Bank, ICICI Bank and Axis Bank — for the whole of last year. These stocks gained only 16-20 per cent in the last one year.
Currently, the fund has only about 7 per cent exposure to public sector banks, while about 81 per cent still comprises private sector bank stocks.
In contrast, ICICI Pru Banking Fund, the top performer within this category, has delivered 44 per cent in the last one year, having taken active calls on PSU bank stocks such as SBI and BoB. Reliance Banking Fund delivered 37 per cent in the last one year, and has stocks such as SBI and Canara Bank in its kitty.
Lacks diversification
The fund has not lost out on PSU bank stocks alone. It also missed the bus when it came to non-banking financial companies (NBFCs) which also were on a merry ride.
ICICI Pru has stocks such as Repco Home Finance, Max India, Bajaj Finserv and Sundaram Finance in its kitty which have rallied sharply in the last one year.
Repco and Sundaram Finance have delivered 140 per cent and 70 per cent returns, respectively. Reliance Banking Fund has exposure to companies such as Bajaj Finance and Indiabulls Housing Finance, which have rallied 65-85 per cent. Religare Invesco, on the other hand, only had LIC Housing Finance (3-5 per cent) in its portfolio the whole of last year. Max India and Sundaram Finance are only recent entrants.
Religare Invesco’s lack of diversification has impacted returns. It has delivered 7-10 per cent lower return than the top performing fund.
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