Infrastructure funds flounder

Infrastructure funds haven't had it easy with the slowdown in capital expenditure and investments by companies. The high cost of finance has also taken a toll on the underlying sector. The poor performance of these funds during the past year, therefore, doesn't come as a surprise.

As a category, these funds averaged a return of approximately -13 per cent as against -8.9 per cent of BSE 500. But what does surprise is the significant divergence in performance within the category. While the top fund managed to limit its loss to below 3 per cent, the worst-performing fund lost a good 21 per cent during the year.

DIVERGENT PATTERNS

Of the 24 infrastructure funds (open-ended) with a performance record of more than a year, only five managed to better BSE 500 during the year. Of these, Canara Robeco Infrastructure was the only fund that managed to beat the index across one, three and five-year timeframes.

Reduced exposure to construction and metals in 2009, and increased allocation to sectors such as telecom, petroleum, and banks helped the fund score across timeframes. AIG Infrastructure and Reform managed to deliver better than BSE 500 during one- and three-year timeframes.

Among the worst performers for the year were Reliance Diversified Power Sector, Reliance Infrastructure, Baroda Pioneer Infrastructure, and LIC Nomura MF infrastructure funds. That Reliance Diversified Power Sector was the best-performing equity fund in 2007 highlights the changing fortunes of theme-based funds.

For instance, while funds such as Taurus Infrastructure and HDFC Infrastructure fell behind BSE 500 during the year after having outpaced it during a three-year period, Sahara Infrastructure registered a recovery during the year.

UNDETERRED

Infrastructure as an investment theme, however, had been a multi-bagger in 2006 and 2007. But following the equity carnage in 2008, the funds have found it difficult to resurrect themselves. Driven by slowed capex and investment thrust, rising input costs and higher costs of borrowing, infrastructure stocks have been laggards in the markets since. Their average returns, therefore, pale out even on a three-year timeframe.

While these funds delivered 16 per cent (average) compounded growth in three years, BSE 500 scored better with its 22.4 per cent return during that period.

Interestingly, poor performance of the category hasn't deterred fund houses from launching infrastructure funds. From just approximately 11 funds in 2007, there are now almost 24 funds, with at least a year's record in this category.

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