Well diversified, superior returns

UTI Equity Fund, launched in April 1992, is a diversified equity fund with average assets under management (AUM) of Rs 1,953 crore as of quarter ended September 2011. The fund has a mandate to invest at least 80 per cent of in equity and equity-related instruments and up to 20 per cent in debt and money market instruments.

The fund is ranked CRISIL Fund Rank 1 (top 10 percentile of the peer set) in the Diversified Equity Funds category as per the Crisil Mutual Fund Ranking for the quarter ended June 2011. The fund has been ranked in the top 30 percentile of the peer group for 10 out of the past 13 quarters (exceptions were March, June, September 2010). The consistency in fund performance indicates a blend of superior performance and efficient portfolio management. It is managed by Anoop Bhaskar, who is the Head of Equity at UTI Asset Management Company (AMC).

PERFORMANCE
The fund has delivered superior returns and outperformed its benchmark (BSE 100) and category average over longer time frames of 3 and 5 years. Over the last 1 year, too, the fund has given considerably lower negative returns (-11 per cent) as compared to its benchmark (-19 per cent) and category average (-17 per cent) indicating that the fund managed to limit its downside better vis-à-vis its category. Likewise, it has done better (-16.6 per cent) during the six months period ending September 30, 2011 as compared to the category average (-20.3 per cent) and BSE 100 index (-28 per cent). Over a 5 years period, the fund posted a compounded annualised growth rate (CAGR) of over 10 per cent vis-à-vis 6 per cent and 8 per cent, respectively of the BSE 100 and the category.

An investment of Rs 1,000 over a 10-year period since August 2001 would have appreciated to Rs 7,669 (CAGR of 22.19 per cent) as on September 30, 2011. The same amount invested in the benchmark and S&P CNX Nifty would have returned Rs 5,531 (CAGR of 18.32 per cent) and Rs 4,649 (CAGR of 16.32 per cent), respectively. In a monthly systematic investment plan (SIP) of Rs 1,000 for 10 years, the total invested amount of Rs 1,20,000 would have grown to Rs 3,33,297 as on 30th September, 2011 yielding an annualised return of close to 20 per cent. A similar monthly SIP in the BSE 100 would have grown to Rs 2,76,601 yielding over 16 per cent annualised returns.

LARGE CAP BIAS
The fund has diversified its holdings across market capitalisations but has shown bias towards large cap stocks. The fund’s exposure in CRISIL defined large cap stocks (top 100 stocks based on 6-month daily average market capitalisation on the National Stock Exchange) has never been less than 60 per cent over the past 2 years. As of August 2011, 69 per cent of the fund had exposure to large cap stocks followed by 30 per cent to midcap stocks and a less than 1 per cent exposure to small cap stocks.

INVESTMENT STYLE
Active cash calls during various market phases, is an important characteristic of UTI Equity fund’s investment style. This strategy benefited the fund when markets were going through a bear phase. Between June 2008 and May 2009, the fund’s average equity exposure stood at 79 per cent as compared to its category average of 86 per cent. The fund manager increased average exposure to cash and cash equivalents to approximately 13 per cent during this period. When the markets started recovering post May 2009, the fund manager increased average equity exposure to 92 per cent and reduced exposure to cash & cash equivalents to 6 per cent for the same time period.

PORTFOLIO DIVERSIFICATION
The fund held an average of 73 stocks over a period of 3 years indicating a well diversified portfolio. The top 5 stocks of the fund has accounted for only 17 per cent of the portfolio over the last three years.

As on August 2011, the top 5 stocks overweight vis-à-vis its benchmark are TCS, Sun Pharmaceutical, Nestle India, Axis Bank and Cairn India and underweight stocks are Reliance Industries, Infosys, Larsen & Toubro, Mahindra & Mahindra and Tata Steel. At the industry level, banking has been the most favoured sector over the last three years, with an average 16 per cent exposure followed by consumer non durables and software constituting 13 per cent and 8 per cent, respectively.

For the last three years, the fund has increased exposure to software and pharmaceuticals which have outperformed the benchmark (BSE 100) for the same period.

Source: http://business-standard.com/india/news/well-diversified-superior-returns/452989/

Are HDFC Top 200, HDFC Equity the same?

There appears to be striking similarity between the top two largest equity funds in the Rs. 6.42 trillion Indian mutual funds (MF) industry. HDFC Top 200 Fund (HT200; corpus size of Rs. 10,692.11 crore) and HDFC Equity Fund (HEF; corpus size Rs. 9,432.92 crore) are part of the same fund house, HDFC Asset Management Co. (AMC) Ltd (the largest fund house as per figures released by the Association of Mutual Funds of India, or Amfi, the MF industry body) and both these schemes are managed by Prashant Jain, chief investment officer, HDFC AMC.

If you had invested Rs. 10,000 every month in both these schemes 10 years back, you would have got Rs. 47.35 lakh in HT200 (26.15% returns) and Rs. 47.09 lakh (26.05% returns) in HEF. Both these schemes are a part of Mint50; a basket of schemes that we recommend our investors to pick and choose from. Should you, then, invest in both of them?

Different paths…

Though the returns from both these schemes seem to have converged in the long run, that’s not entirely intentional as HEF and HT200 have different objectives. HT200 is a diversified equity fund that benchmarks itself against BSE 200 index. As per its mandate, the common holding between its own holdings and that of its benchmark index (BSE 200) should be at least 60%. For instance, if Infosys Ltd constitutes 5% of BSE 200 and 7% of the fund, the common holding is 5%. It’s a mandate that doesn’t hug the benchmark index, but restricts the risks a typical equity fund can take on.

HEF, on the other hand, is an aggressively managed large-cap-oriented equity fund. It invests 60-65% of its corpus in large-cap scrips and the rest in mid- and small- cap companies. “We don’t shy from straying away from the benchmark index in HDFC Equity because we don’t hug the benchmark index. Some of our mid-cap holdings have done very well for us in HDFC Equity fund over the years,” says fund manager Prashant Jain.

HEF was launched in December 1994 by the erstwhile Twentieth Century Asset Management Co. Ltd when it started its operations in the Indian MF industry; the scheme went by the name of Centurion Equity Fund in those days. Prashant Jain, along with his former colleagues Chandresh Nigam (who now heads Axis Asset Management Co Ltd’s equity funds) and E.A. Sundaram, used to manage this fund in the initial years, up till February 1999 when Zurich India Asset Management Co. Ltd acquired it. Then, Nigam alone managed this scheme till June 2003 when HDFC AMC acquired it. Nigam, unlike Jain, did not join HDFC AMC and so the scheme fell in Jain’s lap, who has been managing it ever since.

In the meantime, another fund house ITC Threadneedle Asset Management Co. Ltd had launched ITC Threadneedle Top 200 in October 1996. Bobby Surendranath managed it back then, till 2001. In the interim, Zurich AMC acquired ITC Threadneedle and rechristened the scheme as Zurich India Top 200 Fund in December 1999. After Surendranath quit Zurich AMC (he later worked in Standard Chartered AMC when the latter entered the Indian MF industry and was eventually rechristened as IDFC AMC) in the middle of 2001, Jain started to manage this fund too.

…reach the same goal

More than 10 years since the schemes were launched, a look at their past returns seems to suggest that both the schemes have given similar returns over longer time periods (see graph). Additionally, we looked at the schemes’ rolling returns; a string of one-year and three-year returns over the past six years; returns calculated at the end of every quarter between June 2004 and the present to look for any patterns. On an average, the difference between the two schemes was barely two percentage points on a three-year basis. That both these funds are the two largest equity schemes in the Indian MF industry further bridges the gap between the two.

But returns between two or more funds can be similar for a number of reasons. We looked at the funds’ portfolios to check out for any similarities there. We checked out both the schemes’ portfolios—specifically their top 20 holdings--from December 2007 till date. Of the top 20 stocks both these schemes have held, 14 stocks have been common on an average (see graph). As on 10 June, 16 of the top 20 stocks were common across both schemes’ portfolios. Their percentage holdings are also high. For instance, as per their August 2011 portfolios, the 14 common stocks account for 50.31% of HEF’s portfolio and 47.94% of HT200’s portfolio. “When two or more schemes are managed by the same fund manager for such a long time, portfolios are bound to look the same. For instance, sectors like banking and pharmaceuticals—two of the most commonly prominent sectors in diversified equity funds in the past two years—will generally have almost the same exposure,” says Sachin Jain, research analyst, ICICI Securities Ltd. He claims that the top 20%, 30% or 40% of exposure in two such schemes would have little difference.

Method in madness

But not all believe that both the funds are similar. The head of research of the private banking division of a private sector bank that has consistently recommended both these schemes—much like Mint 50—suggests that investors should also look at their volatility. “HEF is usually more volatile than HT200 as the former can also invest in mid-caps,” he says on condition of anonymity because he is not permitted to speak to the media. In rising markets, such as in 2006 and 2007, HEF was more volatile than HT200; a statistic (as per data provided by Value Express) best represented by a ratio called the Sortino ratio. The head of research who spoke to us says that his private banking unit, despite both these schemes making it to their recommendation list, suggests HEF to aggressive investors and HT200 to conservative investors.

Jain of HDFC AMC agrees: “As a result of the difference in risk profiles, the year-on-year difference in performance can be visible. Typically, if the index does well, HT200 will outperform. Whenever the index doesn’t do well, HEF will outperform.” Jain is quick to add that in the past 10 years, a well-performing index has led to HT200’s performance, while a mid-cap exposure has boded well for HEF.

Jain of ICICI Securities adds that a high corpus size of both these schemes also bridges the gap. “Since the corpuses of these schemes hover around the Rs. 10,000 crore mark, it’s difficult to make two very different portfolios. For instance, the top scrips would be among the most liquid stocks. Since the scheme is managed by the same human being, these names would be more or less similar.”

But Jain of HDFC AMC disagrees. “Size doesn’t matter,” he says. “Even today, HEF is far away from the benchmark index; scrips such as Reliance Industries Ltd, ITC, State Bank of India​ and so on, have difference weightages in the benchmark index and in HEF.” And here’s where the difference, he claims, comes about when top schemes across fund houses are compared. “The top 40-60% of the portfolio will be common across many top schemes across fund houses. But the bottom 20-30% of the portfolio is where the difference arises.” 

What should you do?

Financial planners and analysts are divided on whether you choose one of the two or both. “The objectives of both these schemes are different. Today, HEF is heavily skewed towards large-cap scrips. But going ahead if mid-cap stocks become cheaper, we may see HEF getting into mid-caps. Hence, the risk-return parameters can get very different,” says Rupesh Nagra, head (investments and products), Alchemy Capital Management Ltd. He feels that investors can invest in both these funds.

Jiju Vidyadharan, head (funds and fixed income research), Crisil Research, too feels that both these schemes can be a part of your portfolio, but for a slightly different reason. “While, these schemes have different objectives, both have delivered largely similar returns because over the last 2 years, HEF has consistently increased its allocation towards large-caps. However, both these schemes have done well in their respective categories and have been delivering consistent returns. Investors can thus choose to invest in both of them as you don’t want to diversify (among fund houses) just for the sake of it.”

On the other hand, Jain of ICICI Securities—much like the private banker above—says that they usually recommend one scheme. “Aggressive investors may go for HEF, while conservative investors may go for HT200,” he says.

While there’s no right or wrong in it—and a bad scheme is bad till we have proof on hands that things are getting sour, which is not the case with HDFC AMC—we find very little to choose between the two. But if two gigantic schemes with similarities in mandates are managed by the same fund manager for years, expect some duplication. In which case, we feel it’s best if you choose one and diversify across fund houses to get more variety.

Source: http://www.livemint.com/2011/10/18233840/Are-HDFC-Top-200-HDFC-Equity.html?h=B

Indian markets expected to trade in a broad range: Sandesh Kirkire, Kotak Mutual Fund

As far as India is concerned, apart from domestic factors, the negatives stemming from worries in global markets have also been factored in.

Key Indian indices were expected to trade in a broad range over the next few weeks, Sandesh Kirkire, CEO, Kotak Mutual Fund said in a recent report on a view on markets in October.

“We may be witnessing a contraction in the global risk appetite leading to a board decline in major asset classes,” he said. 

This could be attributed to a slowdown in consumer spending in the US and high rates of unemployment. Also, in Europe, the sovereign debt crisis ailing the PIIGS nations, and the onset of the severe austerity cuts needed to resolve that issue have been a major cause of concern for the global economy.

As far as India is concerned, apart from domestic factors, the negatives stemming from worries in global markets have also been factored in, the report said.

Interest rate concerns were expected to alleviate in the coming months on the back of a good monsoon which would lead to an enhanced crop output and thereby lower agri-commodity prices. Also, the besetting slowdown in the US, Europe, and China may help alleviate the international crude oil prices in the coming months, the report stated.

“For now, the trading sentiment in the equities market remain sensitive to global market volatility, and would continue to follow the unfolding events in Europe closely,” said Kirkire. 

Source: http://www.indiainfoline.com/Markets/News/Indian-markets-expected-to-trade-in-a-broad-range-Sandesh-Kirkire-Kotak-Mutual-Fund/5269321904

Tokio Marine may partner Edelweiss in mutual fund

Edelweiss Financial Services and Japan’s Tokio Marine are looking at the possibility of partnering in the asset management space. Edelweiss and Tokio Marine have an insurance joint venture company, Edelweiss Tokio Life Insurance, which began operations recently.

“Apart from insurance, we would like to be present in asset management space. Since Edelweiss is a significant player, we may be looking at partnering for an asset management company also. Edelweiss on the other hand, wants to enter the Japanese market in which we are a significant player,” said Jun Hemmi, executive director, Edelweiss Tokio Life Insurance.

Tokio Marine has presence in countries such as Japan, Singapore, Malaysia, Thailand and China. In India, Tokio Marine is present through its general insurance company Iffco-Tokio General Insurance.

Hemmi added that as per the contract, Edelweiss Financial Services couldn’t quit the insurance business before completing 10 years of operations. According to the Insurance Regulatory and Development Authority (Irda), the minimum lock-in period for an Indian promoter is five years. The company is also in talks with banks for a bancassurance partnership.

Edelweiss Tokio is setting up its branch network with initial focus on western and northern India. The company is looking at slow growth in the first two years of operations because it plans to build an agency base with focus on strengthening the company. The company plans to launch 22 branches in the present financial year. It has already opened 13 branches so far.

Edelweiss Tokio Life Insurance got its licence in May 2011. Since the start of its commercial operations in July this year, the company has sold 1,000 insurance policies, mostly traditional policies, Hemmi said. The company wants to build an agency force of 50,000 people. On not having bancassurance as a distribution channel, Hemmi said that the company does not see this as a disadvantage, but noted that it was open to tie-ups.

Source: http://www.mydigitalfc.com/personal-finance/tokio-marine-may-partner-edelweiss-mutual-fund-043