2017 is going away forever, leaving fond memories behind. For mutual fund investors, this has proved to be a great year especially if they had invested in equity mutual funds. With the Sensex giving over 30% gain, top-performing MFs have easily given double of that. While investors may have to rein in expectations because 60-70% returns cant keep happening every year, mutual funds have once again proved to be an easy wealth generator for the common man. Best-performing funds have shown that it doesn’t take fancy instruments to make money; what works is a good and disciplined investment process.
Let us have a detailed look at the top 10 MFs that gave the maximum returns in 2017:
1. SBI Small & Midcap Fund
Number 1 on the list is SBI Small & Midcap Fund. Launched in 2009, this Rs 888-crore fund is managed by veteran fund manager R Srinivasan. It has generated 78% gains in 2017, with its fund picks striking it rich. This the best annual return for the fund in many years. In 2014, the fund had given 68% returns amid the midcap and smallcap mania that year. This scheme was originally called Daiwa Industrial Leaders Fund and was a large-cap scheme. After SBI MF acquired Daiwa, it was renamed to SBI Small & Midcap Fund in 2013 and became part of the mid and small cap category of funds.
2. Tata India Consumer Fund
Tata India Consumer Fund is the second-best performer of 2017. An extremely young scheme launched in December 2015, the fund proves small is beautiful. It has an asset size of Rs 413 crore. Managed by Sonam Udasi, the fund reaped rich rewards from investments in companies in the consumption-oriented sectors in India like automobiles, media, and entertainment, consumer durables, FMCG and textiles. Patience has paid off for the fund’s investors after a sluggish 2016 when the fund gained a mere 3%.
3. L&T Emerging Businesses Fund
L&T Emerging Businesses Fund is an out and out small-cap fund. Launched in May 2014, 2017 has been a solid year for the scheme with investors getting 65.3% gain. Managed by S.N. Lahiri, the fund employs a bottom-up stock picking approach for stock selection. Its overweight position in companies expected to be beneficiary of revival in rural and urban consumption has helped. The nearly Rs 2900-crore fund favours themes like revival in industrial and manufacturing sector which might be a beneficiary of increased government spending going forward.
4. Reliance Small Cap Fund
Reliance Small Cap Fund is among the top performers in 2017 with 62% gains. The 7-year old scheme, managed by Samir Rachh since September, is among the big funds in its category with Rs 5600-crore assets. With as many as 87 stocks in its current portfolio, the fund likes to diversify risks a lot. Diversification hasn’t hit returns yet. The fund has over 60% assets in small cap stocks. At this moment, the fund is overweight chemicals, FMCG, and engineering compared to the S&P BSE Small Cap index. It is underweight on construction, services, healthcare and automobiles.
5. IDFC Sterling Equity Fund
IDFC Sterling Equity Fund is a mid/small cap fund that focuses on active stock selection strategy. It has delivered 61% gains in 2017, the second best annual returns since 2009 when it had gained 105%. The focus of this Rs 2065-crore fund, managed by Anoop Bhaskar and Daylynn Pinto, has been on building a portfolio of leader/challengers and emerging businesses with an emphasis on bottom up stock selection. The fund has a 81-stock portfolio. Its exposure to giant & large caps at 25% is interesting given current mid and small cap valuations.
6. L&T Infrastructure Fund
L&T Infrastructure Fund is one the oldest funds in its infrastructure category. The scheme is among the best performers across categories in 2017, with a robust 60% return. The Rs 1200-crore fund is more of a thematic bet and is one of the children of the 2004-2007 bull market. However, the 2008 market crash made for a hard landing. 2017 has been a very different experience, with the bullish equity market sentiment lifting infrastructure stock prices. The 50-stock fund portfolio is sitting on 12% cash.
7. Reliance Diversified Power Sector Fund
Reliance Diversified Power Sector Fund is another thematic fund that has done very well this year. It’s the 7th best performer in open-ended equity universe with over 59% return in 2017, the maximum annual return by the fund in eight years. Managed by Sanjay Doshi since January 2017, this fund like others in the category is poised to gain from a number of infrastructure-related government schemes and the introduction of new regulatory measures. This will be driven by the earnings growth in organized players in the infrastructure space over the medium to long term, placing infrastructure and ancillary stocks on an attractive footing.
8. HDFC Small Cap Fund
The Rs 1783-crore HDFC Small Cap Fund is the 8th best fund this year, notching up 59.5% return. Launched as Morgan Stanley A.C.E. Fund in April 2008 as a multi-cap fund, the fund was acquired by HDFC Mutual Fund in 2014. The fund repositioning as HDFC Small & Mid-cap Fund happened in 2014 and again in Nov. 2016 this was repositioned as HDFC Small Cap Fund with a clear focus on small cap stocks. The fund’s performance this year has been due to its good stock selection and active management skill of fund manager Chirag Setalvad.
9. HSBC Midcap Equity Fund
It is a relatively less popular scheme. However, the fund has shone to prominence in 2017 with 58.9% return. Managed by Dhiraj Sachdev, this 12-year-old fund’s performance in 2017 is largely on account of its investment philosophy playing out well and stringent processes that have led to price appreciation of tomorrow’s blue chips owned by the scheme. With a portfolio turnover of 37%, the fund manager hasn’t changed his winning team much. The current 42-stock portfolio is filled with FMCG, chemicals, financial, automobile and energy names.
10. IDFC Infrastructure Fund
Like L&T Infrastructure Fund, the IDFC Infrastructure Fund has seen great days in 2017. The Rs 815-crore fund has given over 57% return in CY17. Its portfolio comprises infrastructure-linked giant & large caps (39%), mid caps (36%) and small caps (25%) , giving it a well-diversified look. Fund manager Rajendra Kumar Mishra’s strategy of backing companies with a dominant market share and growing cash flows has worked. The fund’s current portfolio represents our version of the companies which will dominate – construction & logistics segments, infrastructure space, the telecom, and energy businesses.
Conclusion: While 2017 has been superb for the top equity fund performers, the focus on point-to-point returns of funds by investors is undesirable. Investors should ideally focus on consistency of fund performance over long periods and over different market cycles. Along with this, one should also scrutinize portfolio risk so that they can arrive at great fund choices, instead of crowding portfolio with one-off performers.
(By Anil Rego, Founder, and CEO, Right Horizons)