Its one-year performance is underwhelming, but Franklin India High Growth Companies Fund has been a convincing winner over longer time periods. Investors with a stomach for risk and patience in their kitty can buy units of this nearly decade-old multi-cap fund.

With the flexibility to invest across market-caps, the fund ups its exposure to mid-cap and small-cap stocks when it senses the opportunity.

For instance, over the past seven months, it picked stakes in KEI Industries and ITD Cementation India.

In the past, exposure to mid and small-caps has gone up to nearly 25 per cent of the portfolio. For now though, they make up about 10 per cent, with large-caps accounting for the chunk (nearly 80 per cent) of the corpus.

Also, the fund does not shy away from taking contrarian bets. For instance, over the past two years, it has steadily increased exposure to SBI, ICICI Bank and Axis Bank that have faced loan default troubles — these stocks now account for almost a quarter of the portfolio.

Except HDFC Bank, all the banking stocks in the portfolio have been punished on the bourses. So have other cyclical picks such as L&T. This has contributed to the fund’s poor run last year — its 0.3 per cent return last year pales in comparison to the nearly 3 per cent return of the benchmark Nifty 500 and the 4 per cent category average return.

But these now under-performing stocks could pay off handsomely when economic growth picks pace. Meanwhile, the fund’s other big cyclical holding — auto and related stocks — delivered well last year.

Also, the firm’s stock selection has been vindicated over the long run.

At about 31 per cent and 19 per cent, the fund’s annualised return over three years and five years is 9-12 percentage points higher than that of its benchmark Nifty 500.

The winning consistency is high — on a daily rolling return basis, the fund’s annual return was higher than the benchmark’s nearly 85 per cent over the past five years, indicating that the fund has done well during most upsides and downsides.

Among peers, the fund is a top quartile performer over longer periods. Stocks such as JK Lakshmi Cement and TVS Motor Company have gained manifold over three and five years.

The fund looks beyond Indian shores, too, for opportunity — it has about 3 per cent of its corpus in US-listed Cognizant Technology.

The right calls

Franklin India High Growth Companies Fund’s objective is to invest in Indian companies and sectors with high growth rates or potential.

While this suggests a growth investing strategy, the fund’s stock picks and sector shifts indicate a blend with the value investing approach, too.

Over the past few years, it has cut exposure to the defensive pharmaceutical and software sectors in favour of cyclical stocks. It has also generally kept off FMCG stocks.

With a relatively large corpus (about ₹4,800 crore) and low portfolio turnover (about 32 per cent), the fund’s expense ratio (2.3 per cent in June 2016 in the regular plan) is lower than the category average (2.6 per cent). Its equity exposure is 90-96 per cent of the portfolio with the rest held in cash.

There have been no debt investments for some time now.

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