Changes in FundsIndia’s ‘Select Funds’ List

March 5, 2014 . Vidya Bala

FundsIndia’s ‘Select Funds’, a list of investment-worthy funds across various categories, helps you narrow your investment choice from the 100s of funds that you have to otherwise 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 funds under-perform for prolonged periods and pose the risk of an opportunity loss for your portfolio.

We have made changes to this list recently and would like to highlight them here. We are also introducing a new category of ‘theme funds’ meant for risk takers. This category is aimed at investors looking for opportune sectors to invest in and also those looking to diversify into other markets. Do note that you will have to track these more closely if you wish to invest and find opportunities to remove profits.

Equity Funds

Among the equity funds – 2 schemes, Axis Equity and Franklin India Prima have made the cut to our list and one fund – Birla Sun Life Dividend Yield Plus has been moved to the ‘watch’ mode. Read on to know why.

Axis Equity

This fund, with a large-cap tilt, has been making it to our filtered list for quite a few quarters now. While it’s consistency in a volatile market provided comfort, we had to see had the fund’s performance in an uptick as well.

The recent rally post September has boosted our confidence in the fund’s ability to ramp up quickly. This fund can be a good addition to a relatively conservative investor’s portfolio. We will soon have a full-fledged call/review on this fund in our weekly review.

Franklin India Prima

Franklin India Prima, one among the handful of funds to have been launched in the 90s, completed two decades of investing in the Indian stock markets.

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While the fund ruled the mutual fund charts for many years (until the mid 2000s), it did see a fall from grace since then and was languishing well after the 2008 market fall. But this mid-cap fund appears to be on a comeback trail, this time, seemingly less flashy and more resilient.

Investors can use this mid-cap focused fund as a diversifier in their portfolio. The fund’s current portfolio of stocks, given the exposure to many beaten sectors such as engineering, may provide index-beating returns when markets witness a more steady rally, backed by a revival in the economy.

As such, our positive view on this fund stems more from the fund’s current portfolio. This is a good fund to play the ‘revival’ theme.

Birla Sun Life Dividend Yield Plus

We gave this fund a long rope for 3 quarters now but had to move it to our ‘hold’ bucket for now, giving its continuing underperformance. Why the dip? The fund stubbornly remains  overweight (compared with its benchmark CNX 500) on the banking and finance space, as a result of which it had to take a deeper cut, as the sector remains in a downturn.

That said, the quality of banks it holds has undergone a change suggesting that the fund, although bullish on the sector, is now discreet in its picks within the space.

Besides, we still find the rest of the portfolio promising, given the valuations of stocks and the possibility for good upside when an economic revival is in sight. The fund is therefore removed from the Select Funds list, but is being keenly watched by us for improvement.

Debt Funds

It is in tough times that Templeton funds appear to attract attention. Yes, we have 2 additions from that house; one in the short-term debt category and the other in the income fund category. We are placing a hold on the Morgan Stanley Short Term Bond fund simply to wait for its integration with HDFC Mutual.

Templeton India Short Term Income (short-term debt for 1-2 year holding)

We have been quite conservative in our choice of short-term funds, preferring a portfolio laden with mostly certificates of deposits and Commercial papers. We decided we will add one fund with a tilt towards bonds.

But why add now? Because we believe that interest rates could be peaking, and credit risk is perhaps at its worst. In other words, it may only get better. In such a scenario, if we had a portfolio with good corporate bonds but with short tenure, we may do some balancing act for slightly higher returns. But do note that of the short-term funds in our list, we would classify this as being relatively riskier.

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Templeton India Income Builder (Debt funds – long term)

Our long-term debt portfolio too, thus far has been a tame one. Quite cautious on credit risk and not taking on too much duration risk (you will not find funds with long average maturity). But again, Templeton India Income Builder’s expertise in picking instruments that may not always be AAA-rated but have comfortably managed a good record meant that the risk-adjusted return in this fund is higher than the other funds in this category we have chosen.

Being among the oldest debt funds in the country, its track record also inspires confidence. Hence, we offer this fund in our platter, for those with that extra bit of risk appetite.

Theme Funds

ICICI Pru Technology, SBI Pharma, ICICI Prudential Export & Other Services, L&T Global Real Assets, FT India Feeder Franklin US Opportunities and Franklin Build India are the themes we will go with, at this point in time. The first two, as you many know, will ride the export theme, especially if markets such as the US are on a recovery mode. These 2 are also relatively safe bets in a credit-sapped environment, as companies in these sectors are mostly cash rich.

The third fund, ICICI Pru Export & Other Services, will ride both the IT and pharma sectors besides other service sectors. This fund would be a proxy for you to ride both the IT and pharma spaces in one shot. Hence, it can be held in lieu of the other 2 funds if you do not want a focused sector bet.

In all these sectors a 2-3 year view and an active profit-booking strategy will be required.

L&T Global Real Assets and FT India Feeder Franklin U.S Opportunities are the 2 international funds in this bucket. The former will invest in hard assets – mines, oil wells, factories, infrastructure and real estate across the globe and is viewed as a hedge against inflation. We chose this for consistency in performance although it has not shown any flashy returns.

The US fund will of course invest in the US market through the parent fund. Do note that while these funds delivered double-digit returns in the last couple of years, they are best viewed as diversifiers and not chart toppers.

The last fund in our theme basket is Franklin Build India. We like to call it a dark horse at this point. Our bet on this fund is entirely based on a revival story. We recently covered this fund in our weekly call.

All the funds in this basket will be termed risky and may undergo changes as and when we see better opportunities. Hence, you may have to track them more actively if you hold them (given a 2-3 year time frame required).

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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.