For those of you who are new to our platform, FundsIndia’s ‘Select Funds’ is a list of investment worthy funds. Spread across various categories, this list helps you narrow down your investment choices from the hundreds of funds that you would otherwise have to sift through before investing.
This list is reviewed on a quarterly basis. There are additions to ensure that good choices are not left out. There are also deletions if we find certain funds’ strategies to be inappropriate for the prevailing market conditions.
Before we move on to the changes we have made this quarter, here’s an important message – none of the funds we removed warrant a sell. We do not prefer that you sub-optimally churn your portfolio. Our endeavour, through the Select Funds list, is to choose funds that are good and appear to have an edge in the present environment.
This quarter, our Select Funds list, more or less, remains the same.
Addition to high risk
In the equity – high risk category, we brought in Franklin India High Growth companies, that we recently covered in our weekly call. This fund is an ideal candidate for the current growth-oriented market scenario. It has also built a good track record for itself. However, it is not suitable for a core portfolio and fits the bill of only those with a reasonably higher risk appetite.
In the ‘Equity – Hybrid (balanced fund)’ category alone, we decided to remove HDFC Prudence. While this is not an exit call, we thought it would suffice to have HDFC Balanced, another balanced fund from the same fund house. HDFC Prudence is a little more aggressive and volatile when compared to its sister fund.
While it has a well-established track record, for the sake of keeping our list simple and to have a consistent performer, we decided to simply retain HDFC Balanced. Those of you who are holding HDFC Prudence may continue to do so. For those investing afresh, you may choose HDFC Balanced if you are looking for a balanced fund for your core portfolio.
Change in Risk Profile
While our ‘Tax-saving Funds’ list continues to be the same, we have changed the classification of some of the funds. IDFC Tax Advantage (ELSS), for instance, has been reclassified as a moderate risk fund as its standard deviation has become lower, suggesting that it swings far lesser and is more steady. ICICI Pru Tax Plan and Axis Long Term Equity, on the other hand, have moved to the high risk category for marginally higher deviation from their mean returns. Our views on these funds, however, remain unchanged.
Among our ‘Equity Funds – Moderate Risk’ category, we have funds such as Axis Equity, HDFC Top 200 and ICICI Pru Dynamic, whose returns are seemingly lower than the rest of the funds listed there. Some of you might wonder if they are mediocre.
You may have to note the following:
– Some funds may choose to take contrarian sector calls. Axis Equity, for instance, has slightly underweight exposure to finance when compared with its benchmark. At the same time, it has higher exposure to the IT space when compared with some of its peers. These contrarian calls may most likely have pulled down the performance of the fund a little; however, the fund still comfortably beat both its benchmark and category average. One needs a wait approach to see if contrarian calls pay off.
– Similarly, HDFC Top 200 has reduced its exposure to cyclical sectors, compared with early 2014, when it loaded itself with engineering and capital good sectors. Higher valuations in these sectors, together with the fact that it has lower mid-cap exposure than regular diversified funds (at this point of time), has meant that it cannot keep pace with peers. However, this fund too is above its category average and beat its benchmark comfortably.
– ICICI Pru Dynamic, on the other hand, takes dynamic asset allocation calls based on the fundamental valuations of markets. At this point of time, it only has about 75 per cent allocated to equities. The fund works well for those who are particular about equity valuations, and when to invest in equities. While it has also comfortably beat its benchmark, it may be unfair to compare this fund with pure equity peers who hold over 90 per cent in equities.
We have taken just 3 funds (above) to provide a sample on why some funds may be lagging over others in the short term. You should be careful not to shuffle your portfolio too often, based on such short-term blips in performance.
As for our debt funds, we have kept the list untouched. Our income fund calls are beginning to pay off well and we would urge you to stay invested to reap the benefits from a debt rally over the next 18-24 months.
FundsIndia’s Research team has, to the best of its ability, taken into account various factors – both quantitative measures and qualitative assessments, in an unbiased manner, while choosing the fund(s) mentioned above. However, they carry unknown risks and uncertainties linked to broad markets, as well as analysts’ expectations about future events. They should not, therefore, be the sole basis of investment decisions. To know how to read our weekly fund reviews, please click here.