The category of diversified equity funds is buzzing with activity. Out of nine funds that have been rated for the first time, five started off with a four-star rating
01-Jun-2007 •Research Desk
The category of diversified equity funds is buzzing with activity! While new funds keep coming every few weeks, but more importantly, many of the funds launched in the last few years are completing their three years of performance history, and hence getting rated. And interestingly, this brigade of young funds seems to be doing pretty fine. To illustrate, nine new diversified equity funds have joined the league of rated funds, out of which five have started off with a four-star rating. Three of them are rated three-star, while just one has disappointed with a one-star rating.
Reflect back at the quantum of funds that have been launched in these last few years, and you would know that a lot more action is coming up in the coming months, as more and more funds get rated thick and fast.
If what we have witnessed in these last few months (i.e., the first timers starting off with a good rating) were to become a norm, then you should be excited to see your universe of investment worthy funds getting expanded with every passing month! But that also means evaluating more funds before you make your pick. So here we come to your aid with a primer on some of them.
Perhaps the most impressive starter out of the ones listed in the table is Franklin India Opportunities. The fund's aggression and return-generating abilities have impressed our analysts enough to gain entry into the elite club of our analysts' picks. You can read in detail about it in the Analyst Pick section of this issue. Another opportunities fund- DBS Chola Opportunities- has been on a path to improvement. It has consistently improved upon its relative rank in the category over the three calendar years of its existence to move up from bottom quartile to the top quartile. In fact over the one year period ending May 12, it has notched up to fourth rank in the category. It remains to be seen whether it can sustain its superb run to cement its place among the better funds on the category.
UTI Infrastructure delivered ballistic performance in 2006 to emerge as the best-performing fund of the year. Year 2005 was also good as it managed top quartile performance. As a result, its asset size has also shot up from under Rs 60 crore in March 2004 to over Rs 900 crore three years on. No denying that the fund has done exceedingly well and earned a lot of money for its investors, but this has to be seen keeping in mind that the stellar performance has come at a time when the economy is witnessing a tremendous boom in the infrastructure sector, and that the other funds focussing upon the infrastructure sector have also done very well. For example, Tata Infrastructure, ICICI Pru Infrastructure, Sundaram BNP Paribas CAPEX and DSPML T.I.G.E.R. were ranked 3rd, 4th 7th and 11th in the category during 2006. Nevertheless, the fund manager has to be given credit for picking the right stocks even within a narrow investment objective.
The fund invests in a portfolio well spread out across 35-40 stocks of large as well as medium sized companies. Stocks like ACC, BHEL, ICI India, IVRCL and Shree Cement have proved hugely rewarding for the fund. If you believe that the infrastructure sector has got long legs to run, then this fund can be a good choice for a focussed exposure to this sector.
In sharp contrast to UTI Infrastructure is UTI Mid Cap, as it has started off with a disappointing one-star rating. The fund's initial performance was very impressive as it raced ahead to the top quartile of the category in 2005. But its problems started from 2006, when the markets turned volatile. Currently, its one-year returns of negative 0.4 per cent (as on May 31, 2007) are far worse that the category's 30 per cent. Other mid-cap funds have also fared poorly during this period, but this one has been particularly hit very hard. Steep fall in prices of its portfolio constituents like Dwarikesh Sugar, Hindustan Construction, Marksans Pharma did not helped its cause.
In April, three funds - UTI Dynamic Equity, UTI Growth & Value and UTI India Advantage Equity - were merged into UTI Mid Cap, taking its asset size up from Rs 74 crore in March to Rs 413 crore by the end of April. Now it better spruce up its performance!
Included in the list are three fund of funds as well - Birla Asset Allocation Aggressive, FT India Life Stage FoF 20s and ICICI Pru Advisor- Very Aggressive. Fund of funds are not popular among the Indian investors and therefore, these three are remain quite small in their asset size. The largest of these - FT India Life Stage FoF 20s - manages assets worth just under Rs 19 crore. As far as the returns are concerned, these funds have not been all that great. They have good ratings by virtue of being less volatile than their peers, since their assets are spread across a lot of funds. The advantage of such funds is that each of them is a complete portfolio in itself and by investing a single fund, your money gets spread across 5-7 funds. Therefore, they might appeal to those who want to avoid the hassle of tracking a lot of funds and want to restrict all their investments to just one fund. But the flip side is that they restrict their investments to the funds of their own fund family only.