If you hate mediocrity, there are good chances that you'll love Franklin India Prima Fund. There are no half measures with this fund-it can either be located in the first quartile of its category or the last. At present, its first quartile status is maintained with 107 per cent returns over the full cycle, extending from April 25, 2003 to May 17, 2004. Its podium finish in the past three consecutive calendar years reaffirms its status as the undisputed mid-cap king.
Still, Prima is not for the faint-hearted. Mid-caps are always volatile and the fund's volatility should not come as a surprise. With an awesome five-year annualised return of 38 per cent, it more than makes up for any volatility.
The fund manager has a knack of picking stocks that are likely to grow rapidly and the ability to become market leaders. In order to stay clear of the poor liquidity associated with mid-cap stocks, the fund takes small exposures in a large number of companies. It prefers to hold on to the stocks it believes in and this selective buy-and-hold strategy has worked out wel. For instance, the fund has held Ucal Fuel Systems since June 2002 and kept on increasing its exposure at attractive valuations. The stock price of Ucal has tripled since June 2002. Ballarpur Industries, Goodlass Nerolac and LIC Housing Finance are similar exmaples.
Mid-caps' volatility means that when the investors lose interest in the market, they fall more rapidly than the large-caps. Thus, the fund is prone to wide swings as and when the markets change direction. For instance, December 2003 was a great month for the fund as it posted one of its best performances in its decade-old existence gaining 24 per cent. Its sectoral calls in services, textiles, chemicals and automobiles were brilliant in hindsight.
However, the very next month, that is, January 2004, the markets turned bearish and the very same sectors proved to be its undoing as it lost about a tenth of its value in a month. Thus, the real challenge for the fund is to limit the downside when markets go into a tizzy and mid-cap stocks fall like ninepins.
Overall, this mid-cap specialist is a return powerhouse. In spite of the growing number of mid-cap funds, Franklin India Prima remains our first choice.
This article was originally published on July 06, 2004.
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