The focussed equity funds category has delivered quite well over the long term. Amidst volatile market movements over the past few years, this category has outpaced the flexi-cap and large- and mid-cap fund segments. It has delivered better returns over the past seven years on a rolling returns basis.
Being large-cap oriented has, in general, helped focussed funds in weathering market gyrations. But many in the category have also delivered robust returns when the broader indices rallied.
In this regard, IIFL Focused Equity Fund has been a strong performer and among the best in its category by delivering consistent returns across time-frames. It has done better than most peers and its benchmark over the long term. It follows a blend of value and momentum investing strategies, which has worked well for the scheme.
IIFL Focused Equity may be suitable for being in the core part of your equity portfolio, if you have a medium risk appetite. Read for more on why the fund may be a good addition to your portfolio if you can stay put for 7-10 years at least. The SIP route may be suitable for investing in the scheme.
Delivering across time-frames
On a rolling five-year basis from January 2015 to October 2022, IIFL Focused Equity has delivered an average return of 16.3 per cent, ahead of most funds in the category and among the top few. SBI Focused Equity, about which we had written in the context of blended domestic plus US investing, is the topper in the category over this time-frame, with 16.5 per cent returns. On a seven-year rolling basis, too, IIFL Focused Equity has delivered a healthy 16.5 per cent.
It has managed to beat its benchmark — the S&P BSE 500 TRI — by a good 3-4 percentage points.
IIFL Focused is also fairly consistent in beating its benchmark. On a rolling three-year basis over the past seven-odd years, it has beaten the BSE 500 TRI over 85 per cent of the time. When a five-year rolling return trend is taken, the scheme has stayed ahead of its benchmark 100 per cent of the time.
On a point-to-point returns basis, the fund has been among the top few funds in its category over three-, five- and seven-year periods.
Even in the heavy correction of February-March 2020, IIFL Focused fell about 36.5 per cent, largely in line with the decline in the broader markets.
Blended investing style
Focussed funds follow a flexi-cap style of investing and hold stocks across market capitalisation. The scheme takes a large-cap-heavy approach with such stocks generally accounting for 61-69 per cent of the portfolio in recent years. Mid- and small-cap stocks have made up a little over 10 per cent each of the overall holdings. IIFL Focused has maintained the number of stocks in its portfolio to around 30 across time-frames. It moves to cash to the tune of 7-10 per cent during volatile markets.
Barring the top 3-4 stocks, the portfolio comprises companies that account for less than 5 per cent each of the overall pie.
A blended portfolio has ensured that the fund participates in rallies and contains or fall in line with the benchmark during corrections. One key change the fund has made after March 2020 has been that it has reduced mid-cap holdings in the portfolio from 23-24 per cent levels to just a little over 10 per cent.
In terms of sector holding, financial services companies have held the top slot all the time. But the other holdings have been rotated based on a mix of strategies. In March 2020, the fund upped stakes in pharma stocks after the onset of Covid-19 given that they were likely beneficiaries of the pandemic. It was early to spot the revival in IT stocks as they were beaten down a couple of years ago. In recent months, it has increased investments in automobile and auto component stocks as well as capital goods shares. Both of these segments are expected to deliver well, as the domestic economy gets into the growth path.