While looking for financially sound companies with quality management may have become the latest investment mantra on Dalal Street scarred by the sectoral excesses of the late nineties, Franklin India Bluechip has followed this strategy for almost five years now.
Being the first diversified equity fund to be launched by a private company, it has waded successfully through many ups and downs. A chart-topper in its category with a five-year trailing return of 24 per cent, the fund has handsomely outpaced the BSE Sensex over the past eight years, and has skimmed the cream of the best large-growth picks.
The fund's sound investment process is crucial, but its long-term success also owes in large part to deft execution by the management. It started off with a lean and clear portfolio, which stressed mainly upon the public sector undertakings (PSUs) in the energy and financial sectors.
The fund learned its lessons early. It had built a wild portfolio through the 1994-96 IPO boom. Its NAV doubled in the first year. But as soon as the IPO boom fizzled out, Bluechip ended up with a portfolio of junk stocks. In the lean years that followed, Kothari Pioneer Bluechip, as it was known then, managed to provide returns by going back to its old favourite — PSUs.
The management deserves kudos for not getting caught up in manias and even better, utilising manias to improve performance and swift timely exit. During the tech boom, Bluechip was one of the few sane heads that invested only in the better tech stocks like Infosys, Satyam and NIIT. It also took solid positions well in advance of the biggest upswings and then booked profits. The great tech collapse found much of the fund in cash and saved it from mammoth losses.
The fund manager takes its growth-at-a-reasonable-price principle quite seriously and generally keeps the portfolio well diversified. Additionally, patience and value picks have also been the factors behind its success.
This fund has always gained more in booms and lost less in a downward market compared to its peers. Moreover, its low volatility, broad diversification and solid management make it an appealing choice.