The market seems to have found its feet again after the demonetisation blues. But uncertainties remain both on the local and global fronts. A multi-cap fund with the freedom to shift between relatively safer large-caps and more rewarding mid- and small-caps, depending on how the wind is blowing, may be a good bet for those with some stomach for risk.

Franklin India High Growth Companies Fund is among the best choices in this category. The fund has been a convincing winner over the long term, beating its benchmark Nifty 500 by 11-13 percentage points annualised over three- and five-year periods. On a daily rolling return basis, the fund’s annual return was higher than that of the benchmark nearly 85 per cent of the time over the past five years, indicating better performance across most market cycles. That said, the fund’s performance is markedly better during bull runs.

Scoring over peers

Franklin India High Growth Companies Fund is also among the top funds in the multi-cap category, figuring in the top quartile over extended time periods. With a large corpus, compact portfolio of 30-35 stocks and low portfolio turnover, the fund’s expense ratio is lower than the category average; this aids returns. On a risk-adjusted basis too, the fund scores over peers with a higher Sharpe ratio.

With the flexibility to invest across market-caps, the fund increases its exposure to mid- and small-cap stocks when it senses the opportunity. In the past, when the market was headed up, such stocks accounted for a quarter to a third of the portfolio. Currently, mid- and small-caps form about 20 per cent of the fund’s corpus, while the chunk – about 70 per cent – is in large-caps. The fund also has minor exposure to foreign stocks — about 2.5 per cent of the portfolio is in US-listed Cognizant Technology.

Cash holding, currently about 6 per cent of the corpus, has gone up to 10 per cent in the past with well-timed deployment aiding returns. Smart sector shifts have held the fund in good stead. For instance, paring exposure to software stocks and adding refinery stocks over the past year has helped.

Adding value to growth

While its name suggests a growth investing approach, the fund blends this with a value strategy too. This sometimes results in contrarian bets. For example, exposure to beaten-down public sector banks, primarily SBI, increased sharply over the past three years. This paid off with the stock’s rally last year. Also, the fund exited Maruti Suzuki last year after its strong run-up. Bets such as JK Lakshmi Cement have been multi-baggers over the long term. Picks last year such as ITD Cementation have paid off handsomely.

The fund is currently betting big on cyclical sectors and little on traditional defensives such as software and pharma. Banks are the largest sector holding in the portfolio, and despite paring stake last year, auto stocks too have a big representation.

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