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The rally in the domestic equity markets after the March low has prompted many companies and mutual fund houses to come out with initial public offerings (IPOs) and new fund offers (NFOs), respectively.
Invesco Mutual Fund has launched Invesco India Focused 20 Equity Fund, which is open for subscription until September 23. The scheme will primarily invest in equity and equity-related instruments across market capitalisation, subject to a maximum of 20 stocks.
According to SEBI’s categorisation of mutual fund schemes, focussed funds have the flexibility of investing in a maximum of 30 stocks across market capitalisations. The Invesco fund will be benchmarked against the S&P BSE 500 TRI.
Why focussed?
The fund house’s view is that only a few stocks contribute majorly to an index’s returns. For instance, for the calendar year 2019, the top 10 stocks’ contribution to the returns of the Nifty 50 (12.45 per cent) and the S&P BSE 500 (8.83 per cent) was 108 per cent and 113 per cent, respectively. In 2017, the contribution of the top 10 stocks to the returns of the Nifty 50 and S&P BSE 500 stood at 69 per cent and 37 per cent, respectively.
Secondly, the fund house believes that while diversification is good, adding a large number of stocks in the portfolio does not always reduce risk. Lastly, there is a wide gap between the returns of the top- and bottom-performing stocks within a sector itself. Therefore, stock selection matters.
With a multi-cap portfolio, the scheme will have flexibility to invest across market caps. Stock selection will be a mix of growth and value stocks. The fund will not take cash/debt calls.
Our take
The scheme is not uniquely themed, and the focussed funds category already has about 24 schemes.
Given its inherent nature of targeting high-conviction ideas, the fund’s strategy may be suitable for all market cycles.
But high stock market volatility requires greater focus on stock selection and hence the fund manager’s mettle will be tested in such market conditions.
Given it limited number of stocks compared with some peers, Invesco Focused 20 Equity could have higher concentration risk. It is an open-ended scheme and will reopen for subscriptions shortly after the closure of the NFO.
The fund will be managed by Taher Badshah.
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