VR Logo

Investor alert

Infrastructure funds are losing assets, and even as many try to invest in the financial sector, the performance is not adding up...

In 2012, the infrastructure fund category posted a healthy 25 per cent return, which was outstanding considering the previous year when the category posted -33 per cent return. The turnaround in performance was largely due to several schemes increasing their allocation to the financial sector. In fact, 11 of the 23 schemes invested over 20 per cent in the financial sector. In comparison, two funds -- Goldman Sachs Infra BeES, due to its design and IDFC Infrastructure -- never had any exposure to financials. It is not surprising why these two schemes figure in the bottom quartile, based on their last 1-year return. And, 13 funds have NAVs below their face value, down by as much as 31 per cent on an average, in absolute terms.

Changing fortunes
In the past decade, the infrastructure sector was instrumental in riding the bull run up to 2007. Not to be left behind, several mutual funds rode on the theme and of the 23 schemes in the category, 8 were launched in 2006 and 2007. At the end of 2006, this sector accounted for 4.6 per cent of the total equity mutual funds, excluding the ELSS. A year later, this share more than doubled to 10.9 per cent and peaked to reach 14 per cent by end of 2009 or a staggering Rs 24,000 crore of assets under management. A lot has changed since then with the markets consolidating in 2010 and falling again in 2011.

Once the darling of investors and the markets, infrastructure funds have started to lose heavily with just over one-third of the assets being managed by these schemes as on March 2013, compared to the high achieved in 2009. A lot of the dismal performance is to do with the sector itself, which has not found anything encouraging to attract investments. The fortunes of this sector depend a lot on government spending, which has not really taken off. Moreover, in a changed economic environment of gloom and relatively higher interest rates, there is little to cheer for the sector or funds investing in the theme.

On their part, many investors have made the wise move to cut their losses and exit, which has further eroded the assets managed by these funds and also affected their performance. Value Research has been vocal about exiting the sector for long, for we believe sector and thematic funds work only if the theme is compelling, or to get the diversity in the portfolio right. By holding on to a non-performing fund, one loses the opportunity that other funds present. To assuage the situation, several schemes have trimmed their infrastructure holdings and instead increased allocation to the financial sector, which has done some damage-control. But infrastructure sector remains full of worries and investors should stay away from it.