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Among the relatively better-performing mutual fund categories, focused equity funds have demonstrated a reasonably robust record of delivering well across cycles.
In this regard, being large-cap oriented has in general helped focused funds in staying relatively moderate on the risk front. They have weathered market gyrations and many have beaten standard benchmarks over the years. In the current market where small caps and many midcap stocks may be a bit overheated in terms of valuations, a large-cap orientation may be suited for investors with an average risk appetite, looking to save for the long term. Market regulator SEBI’s mandate requires focused funds to invest in a maximum of 30 stocks. Though that may seem like a low number, it makes for a crisp portfolio when stock selection is reasonably sound.
Franklin India Focused Equity fund is among the best in its category and has delivered steady outperformance on a consistent basis. Investors can consider taking exposure to the fund for the long term of seven-plus years via the SIP route.
Consistent outperformance
When we take the point-to-point returns basis over the past one, three, five and 10-year periods, the fund has outperformed its benchmark, Nifty 500 TRI, by 1-5 percentage points, placing it among the top few in the category.
When five-year rolling returns over the period November 2013-November 2023 are taken, the fund has outperformed its benchmark over 74 per cent of the time, among the best in its category.
The mean five-year rolling returns over this 10-year period is 14.9 per cent for Franklin India Focused fund, which is better than what DSP Focus, Bandhan Focused Equity and HDFC Focused 30 delivered.
Also, Franklin India Focused fund has delivered more than 12 per cent returns nearly 74 per cent of the time on a 5-year rolling basis over 2013-2023. It has given more than 15 per cent more than half the time and in excess of 18 per cent over 26 per cent of the time in this period.
When SIP returns over the past 10 years are taken, the fund has managed an XIRR of 16.6 per cent, according to Valueresearch data, which is among the best in the category.
The fund has an upside capture ratio of 112.7, indicating that it rises much more than the benchmark Nifty 500 TRI during rallies. Its downside capture ratio is 90.1, suggesting that the fund’s NAV falls a lot less than the benchmark during corrections. A score of 100 indicates that a fund performs in line with its benchmark.
Crisp portfolio
Franklin India Focused invests in a portfolio of 28-30 stocks, in keeping with the mandate for the category. The fund uses a mix of value and growth styles while deciding the portfolio constituents. Though most of the stocks in the portfolio figure across timelines, the weightages are juggled to reflect market conditions and generate better returns.
The fund generally holds 71-75 per cent of its portfolio in large-cap stocks across marker conditions. But mid and small cap allocations are juggled around to generate higher returns, of course, in sync with general market volatility. Small caps went up to 14 per cent of the portfolio in 2021, when markets were still going strong post-COVID and again to about 10 per cent levels around March this year, when these stocks were most sought after. But it has reduced to a little over 8 per cent recently. Midcap exposures have generally hovered around 10-12 per cent levels. The fund also holds cash to the tune of 4-5 per cent across market cycles.
Banks have been the favourite for Franklin India Focused and it generally holds more than 30 per cent of its portfolio in such stocks. In the post-COVID recovery period of late 2020 and 2021, the fund was quick to latch on to cement & cement products and petroleum products. It also took good exposure to construction stocks. In the last year or so, as pharma stocks corrected and became attractive on the valuation front, the fund has upped stakes in the sector. It has also increased its exposure to software stocks as they have had muted action for nearly two years.
Overall, the fund is suitable for those with a moderate risk appetite and with a time horizon of 7-10 years.
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