A large-and-midcap equity fund Why Whom Moderate to high-risk investors with a long-term view
A large-and-midcap equity fund
Moderate to high-risk investors with a long-term view
Large-and-midcap funds play a unique role in a portfolio. They straddle the middle ground between midcap funds and multicap funds. In this category, Invesco India Growth Opportunities is a good option. Formerly a largecap fund, it moved to the large-and-mid category last year in the recategorization process. With an average 3-year return of 14.8%, the fund beats the Nifty 500 TRI’s 12.5%. The fund also matches the average 3-year returns of the large-and-mid category which includes former midcap funds.
Invesco India Growth Opportunities (Invesco Growth) fits moderate and high-risk investors. It is a good option for long-term portfolios and can be used as an add-on to largecap or moderate-risk multicap funds to add a kicker to returns.
Invesco Growth is among the few funds that have been beating the index over 2018. Top portfolio allocations include HDFC Bank, Reliance Industries, and Tata Consultancy Services, three stocks that have pulled up index returns for the past year.
Returns as of 12th March 2019. Returns over 1 year are annualised.
Invesco Growth is not a chart-topper or a flashy fund. It steadily remains above average on 1-year and 3-year returns, in the top two quartiles, compared to its category. This allows it to deliver over the long term. Its average 3-year return over the past 5 years places it on par with other multicap funds such as HDFC Capital Builder Value and DSP Equity Opportunities, and just below the likes of Mirae Asset India Equity and Kotak Standard Multicap.
This steady performance also shows up in its consistency record. Rolling the fund’s 1-year returns for 3 years has it beating the category average, the Nifty 500 TRI and the Nifty Large Midcap 250 TRI over 90% of the time. Rolling 3-year returns since 2013, the fund beats the Nifty 500 TRI and the Nifty 100 TRI a good 97% and 90% of the time. The average margin of this outperformance is about 2.3-2.5 percentage points.
Invesco Growth is good at keeping volatility contained too, scoring better than average. Outperformance coupled with lower volatility results in the fund delivering better-than-average risk-adjusted returns.
Portfolio and strategy
Invesco Growth does not have a distinct strategy, blending in value and growth stocks based on available opportunities. The fund house itself classifies stocks based on growth potential, size, and valuations and the fund picks from this shortlisted basket.
It can go well overweight or underweight on sectors compared to the index. It does not hold too many stocks – the number has hovered around 30-40 over the past two years. Concentration in top stocks is on the higher side which improves the ability to outperform the index on stock rallies. This was especially useful in 2018, where the top stocks were among the few to rally.
However, the fund gradually reduced the top-stock concentration in the past year both as strategy changed to include more mid-caps and fewer large-caps and as size increased. From accounting for over half the portfolio in earlier years, the top 10 stocks now account for about 40%. This is still on the higher side, compared to peers.
The fund aims to maintain large-cap allocations at a minimum of 50% of the portfolio and mid-caps at 35%. Over the past year, allocations to largecaps have averaged at 60% with the remaining in midcaps. The fund does not take cash calls. The mix of growth and value, and large-and-midcaps helps the fund maintain returns across market cycles and market behaviour.
Invesco Growth takes active calls on reducing exposure to or exiting underperformers to limit impact and books profits or gradually exits outperformers. For example, the fund exited Power Grid Corporation, Interglobe Aviation, Dixon Technologies, and Bank of Baroda in 2018, having picked it up in mid-2017. It booked out of Britannia Industries and Hero MotoCorp. Similarly, it exited JSW Energy, Bharti Airtel, and Tata Motors in 2017. It booked profits in stocks such as CDSL and CanFin Homes.
Invesco Growth’s current portfolio is a mix of cyclical and growth plays, reflecting its balanced approach. Over the past year, the fund cut back on exposure to auto and auto ancillaries. Banks and finance are other sectors where exposure was reduced, though it continues to be a heavyweight. Banks and finance together accounted for over a third of the portfolio in mid-2018, which has been pared now.
The fund added to consumer non-durables where valuations are more reasonable than consumer staples. It picked up cement, where pricing growth is returning and which can see an uptick on higher real estate and infrastructure activity. Improving prospects of pharmaceuticals have also seen the fund add here. Software is another heavyweight.
Invesco Growth’s AUM has increased to Rs 1,064 crore now from the Rs 320 crore a year ago. It is managed by Taher Badshah and Amit Ganatra.