The fickle nature of the market was in full display over the past few weeks. Two black swan events — the demonetisation of the old ₹500 and ₹1,000 notes, and Donald Trump’s victory in the US Presidential elections — sent jitters through the bourses. Add to this, the near-certainty of a rate hike in the US the coming month. Worried by the implications of these events on fund flows and economic growth, the market went weak at the knees, giving up nearly all gains made during this year.

Times like these make one seek the comfort blanket of funds that can hold their own amidst raging storms. Birla Sun Life Frontline Equity Fund has been there, done that. The fund has a proven record of containing downsides well and also participating decently in upsides. The safety imparted by its predominantly large-cap oriented portfolio — more than 80 per cent across market cycles — makes the fund a good bet in volatile markets. A large portfolio with more than 70 stocks in the portfolio adds to the comfort by reducing concentration risk in a few stocks.

Birla Sun Life Frontline Equity has been a consistent winner — vis-à-vis both its benchmark (S&P BSE 200) and its large-cap fund category peers. Its one-year daily rolling returns is better than the benchmark’s almost all the time over the past five years and the margin of outperformance in returns over three, five and 10-year periods exceeds 5 percentage points.

In bull markets, Birla Sun Life may lag some peers that have higher allocation to mid-cap and small-cap stocks. But on balance, over longer time periods when the good and not-so-good take turns, the fund is a top-performer, figuring in the top quartile in the category. Its risk-adjusted returns, as measured by the Sharpe and Sortino ratios, are also superior to most peers. Along with good stock and sector selection and the ability to contain losses in weak markets, the robust performance has been aided by a low expense ratio (about 2 per cent). This is thanks to a large corpus (about ₹14,400 crore) and a buy-and-hold strategy that keeps portfolio turnover relatively low.

Growth investing pays off

The fund’s growth investing strategy has paid off in the long run, with relatively expensive stocks such as YES Bank and Motherson Sumi giving solid returns over the long run. While its large portfolio straddles several sectors, the fund has for quite some time been heavy on private bank stocks that account for about a fifth of the corpus. This should also help in the current context of demonetisation, with the rush of old notes into banking accounts helping to reduce the cost of funding. Pragmatic sector rotation, such as the reduced exposure last year to the software sector that faces structural challenges, should help. Also, the low holding in consumer goods stocks is a positive, given the concerns on spending due to demonetisation. But increased exposure to finance stocks over the past year though could possibly pose challenges in the near-term due to loan repayment concerns.

comment COMMENT NOW