Focused equity funds deliver positive returns

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Published: March 11, 2020 3:45:28 AM

Focused funds, as the name suggests, invest in 25-30 stocks, unlike other equity funds which have portfolio of more than 50 stocks.

In the focused fund category, IIFL Focused Equity Fund has given returns of 21.09% in the last one year and the fund has managed to outperform the Sensex even in three-year and five-year periods. In the focused fund category, IIFL Focused Equity Fund has given returns of 21.09% in the last one year and the fund has managed to outperform the Sensex even in three-year and five-year periods.

Sharp polarisation of the Indian equity markets in the last one year has helped focused equity funds deliver positive returns. With slowdown in the Indian economy, fund managers who had invested in stocks such as ICICI Bank, Kotak Mahindra Bank and Bajaj Finance to name a few, have managed to give positive returns in the last one year. However, market participants also say that concentrated bets may not deliver better returns once there is a broadbased rally in the Indian equity markets.

Focused funds, as the name suggests, invest in 25-30 stocks, unlike other equity funds which have portfolio of more than 50 stocks. Despite the benchmark Sensex giving the lower single-digit returns at 2.6% , a few of the focused equity funds such as IIFL Focused Equity Fund, Axis Focused 25, SBI Focused 25 and Motilal Oswal Focused 25 Fund have given returns in the range of 12-21% in the last one year. In contrast, large-cap funds on an average have given returns of 0.47% over the same period, while average multi-cap funds have delivered returns of 3.24%.

In the focused fund category, IIFL Focused Equity Fund has given returns of 21.09% in the last one year and the fund has managed to outperform the Sensex even in three-year and five-year periods. The reason for success can be its investment strategy on SCDV (secular, cyclical, defensive and value trap) framework. Mayur Patel, fund manager, IIFL Focused Equity Fund, said, “Around 50% of the portfolio is in high quality secular growth companies, which are long-term compounding stories, while the remaining portfolio is divided into quality cyclicals and defensives while avoiding value traps.”

Under focused, fund managers take concentrated bets on stocks and sectors based on various investment parameters, like valuations, management and leaders. Data from Value Research showed the top holding of IIFL Focused Equity Fund includes ICICI Bank, Axis Bank and HDFC Bank as on January 2020, while Axis Focused 25 Fund has top holding in Bajaj Finance, Kotak Mahindra Bank and Bajaj Finserv.

Gopal Agrawal, senior fund manager at DSP Mutual Fund, says: “In the past, we have seen a narrow rally in the market and even economic growth was not high. So, if someone had taken concentrated bets on a few sectors and companies that were doing well, this strategy has done well.”

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