Equity markets are on a song. In a universe of over 430 domestic-focused stock funds, it's actually quite difficult to be different in a literary sense. Based on their conviction and research, managers take calls on sectors and stocks. So, which funds are making remarkably different bets from their peers? Value Research analysed hundreds of stock funds to spot those that have taken the road less travelled. Whether these bets will pay off is something only time will tell. However, investors must take note of big overweight and underweight positions.
Overweight optimism
We looked at portfolios at the end of May 2017. Among the diversified equity funds, there are quite a few who have taken significant overweight positions in some sectors compared to their respective benchmark.
Construction seems to be a favourite with some funds. Our study shows that large-cap L&T Business Cycles Fund has a near 28% weight in construction sector compared to its benchmark S&P BSE 200 Index's less than 3% exposure.
Mid cap funds on an average have less than 8% weight in construction. Multi cap funds are more cautious, with 6.26% weight. Small-cap funds are the most aggressive lot with a 13.4% construction exposure. Here's a list of some funds that are highly overweight on some sectors.
Big overweights
| Scheme Name | Category | Index Name | Sector | Fund (%) | Index (%) | Category Average (%) |
| L&T Business Cycles Fund | Mid Cap | S&P BSE 200 Index | Construction | 27.89 | 2.66 | 7.92 |
| Edelweiss Economic Resurgence Fund | Multi Cap | S&P BSE 200 Index | Construction | 25.2 | 2.66 | 6.26 |
| Sahara Star Value Fund | Small Cap | S&P BSE 200 Index | Chemicals | 24.12 | 2.83 | 14.32 |
| IDBI Diversified Equity Fund | Mid Cap | S&P BSE 500 Index | Automobile | 28.97 | 9.75 | 8.07 |
| Tata Midcap Growth Fund | Mid Cap | Nifty Free Float Midcap 100 Index | Construction | 24.41 | 5.48 | 7.92 |
| Tata India Consumer Fund | Mid Cap | Nifty India Consumption Index | Services | 24.82 | 6.36 | 8.51 |
| Tata Equity Opportunities Fund | Multi Cap | S&P BSE 200 Index | Construction | 20.47 | 2.66 | 6.26 |
| Motilal Oswal MOSt Focused Midcap 30 Fund | Mid Cap | Nifty Free Float Midcap 100 Index | Financial | 39.62 | 22.09 | 20.43 |
| Reliance Equity Opportunities Fund | Multi Cap | S&P BSE 100 Index | Services | 18.19 | 1.38 | 5.1 |
| LIC MF Tax Plan | Tax Planning | S&P BSE Sensex Index | Chemicals | 18.49 | 1.82 | 5.77 |
| Birla Sun Life Pure Value Fund | Mid Cap | S&P BSE 200 Index | Chemicals | 19.5 | 2.83 | 9.26 |
| UTI Dividend Yield Fund | Multi Cap | Nifty Div Opps 50 Index | Financial | 27.67 | 11.12 | 28.9 |
| IDBI Equity Advantage Fund | Tax Planning | S&P BSE 200 Index | Automobile | 26.73 | 10.2 | 11.4 |
| HDFC Core & Satellite Fund | Mid Cap | S&P BSE 200 Index | Engineering | 18.03 | 2.06 | 9.8 |
| Sundaram S.M.I.L.E. Fund | Small Cap | S&P BSE Small Cap Index | Construction | 28.54 | 12.67 | 13.38 |
Another sector where some funds are gung-ho is automobiles. With reports of a normal monsoon and talk of higher disposable income in the hands of government employees on account of higher salaries, the outlook for the sector is upbeat. The IDBI Diversified Equity Fund has nearly 29% exposure in the automobile stocks, a huge overweight position when compared to S&P BSE 500 Index's less than 10% allocation. The peer average exposure to the sector from mid cap funds is 8.07%, from multi cap funds is 9.75% and from large caps funds is 11.94%.
Besides construction and automobiles, we spotted quite a few funds that are hugely bullish on chemicals. Sahara Star Value Fund has over 24% exposure to chemicals at a time when benchmark S&P BSE 200 Index has less than 3% weight. LIC MF Tax Plan, Birla Sun Life Pure Value Fund, and L&T Tax Saver Fund have a 14-19% weight in the chemicals space, at least 10 percentage points more than their respective benchmarks.
Cautiously underweight
In boxing and wrestling, athletes lose weight and compete in lower-weight groups to boost their chances of winning. In fund management though, underweight positions can signal bearishness on a sector. For a number of funds, one un-loved space right now seems to be financials. After a massive rally in banks, NBFCs and financial services stocks, clearly a large number of funds think financials are ripe for a reality check; even if their respective benchmark index still features a hefty exposure. Here's a list of funds that are highly underweight on certain sectors.
Underweight sectors
| Scheme Name | Category | Index Name | Sector | Fund (%) | Index (%) | Category Average (%) |
| Escorts Growth Fund | Mid Cap | Nifty 50 Index | Financial | 12.93 | 34.47 | 20.43 |
| ICICI Prudential Dynamic Plan | Multi Cap | Nifty 50 Index | Financial | 13.99 | 34.47 | 28.9 |
| Sahara Star Value Fund | Small Cap | S&P BSE 200 Index | Financial | 11.36 | 31 | 13.45 |
| Escorts High Yield Equity Fund | Mid Cap | Nifty 100 Index | Financial | 12.8 | 32.38 | 20.43 |
| Escorts Leading Sectors Fund | Mid Cap | Nifty 50 Index | Financial | 15.22 | 34.47 | 20.43 |
| HDFC Core & Satellite Fund | Mid Cap | S&P BSE 200 Index | Financial | 12.45 | 31 | 20.43 |
| IDBI Diversified Equity Fund | Mid Cap | S&P BSE 500 Index | Financial | 11.28 | 29.8 | 20.43 |
| Principal Dividend Yield Fund | Multi Cap | Nifty Div Opps 50 Index | Technology | 5.43 | 23.54 | 6.59 |
| Union Focussed Largecap Fund | Large Cap | S&P BSE 100 Index | Financial | 15.22 | 32.71 | 31.53 |
| Edelweiss Economic Resurgence Fund | Multi Cap | S&P BSE 200 Index | Financial | 15.34 | 31 | 28.9 |
| ICICI Prudential Dividend Yield Equity Fund | Mid Cap | Nifty Div Opps 50 Index | Energy | 10.12 | 23.42 | 6.67 |
| Indiabulls Bluechip Fund | Equity: Multi Cap | Nifty 50 Index | Financial | 21.31 | 34.47 | 28.9 |
| Birla Sun Life Tax Plan | Tax Planning | S&P BSE Sensex Index | Financial | 20.5 | 33.22 | 28.76 |
| ICICI Prudential Select Large Cap Fund | Large Cap | S&P BSE 100 Index | Financial | 20.08 | 32.71 | 31.53 |
| ICICI Prudential Top 100 Fund | Multi Cap | Nifty 50 Index | Financial | 22.05 | 34.47 | 28.9 |
Technology is another sector where many active funds have gone underweight. The anti-immigration rhetoric from Trump, unfavorable business conditions and paradigm shift in the way technology services companies operate are making many investors re-think their bets.
Another sector that seems to be losing favour with funds is energy. ICICI Prudential Dividend Yield Equity Fund has about 10% exposure to energy compared to Nifty Div Opps 50 Index's 23.4% weight. IDFC Premier Equity Fund, Reliance Equity Opportunities Fund, Birla Sun Life Tax Plan, Reliance Tax Saver (ELSS) Fund and IDBI Diversified Equity Fund have lowered energy weights to the 1-2% range, a big under-weight position given that their benchmarks and peer funds feature much higher exposure.
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