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Focused equity funds: a high return, high risk play

Focused equity funds, which do not hold more than 20-30 stocks in their portfolios, are finding favour with financial planners now

, ET Bureau|
Updated: Nov 13, 2019, 09.57 AM IST
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Focused equity funds, which do not hold more than 20-30 stocks in their portfolios, are finding favour with financial planners now. These funds aim to deliver higher returns by investing in a limited number of stocks — typically large caps with strong growth prospects. With many equity funds struggling to beat their benchmarks, financial planners believe a clutch of fewer stocks could help generate better returns. Many multi cap funds hold 70 to 100 stocks in their portfolios. Focused funds, however, carry a higher risk as the portfolios are concentrated with top 10 holdings accounting for almost 60% of portfolios. Five focused funds financial planners recommending:

Axis Focused 25 Fund
Fund Manager: Jinesh Gopani
Assets under management: Rs 8,800 cr
Lumpsum returns (3/5 year %): 18.85/14.68
SIP returns: 3/5 year (%) annualised: 14.64/15.32
Top 3 holdings: HDFC Bank, Bajaj Finance, Kotak Bank
Top 10 stocks (%) holding: 65%
The fund manager has a concentrated portfolio of high conviction ideas with 25 stocks. Companies that come into the portfolio have the capability to sail through business cycles without being affected by short-term market volatility. The fund has a core portfolio of 50-60% which consists of stocks that are steady compounders with low
volatility. 20-25% of portfolio consists of alpha generators bought with a horizon of 18-24 months and the balance 25% is allocated to emerging themes, with a long term time frame. The scheme is benchmark agnostic and is overweight capital goods, engineering and construction, financials and consumer.

IIFL Focused Equity Fund
Fund Manager: Mayur Patel
Assets under management: Rs 446 cr
Lumpsum returns (3/5 year %): 14.63/12.71
SIP returns: 3/5 year (%) annualised: 14.97/14.27
Top 3 holdings: ICICI Bank, HDFC Bank, Axis Bank
Top 10 stocks (%) holding: 57%
The fund manager builds a portfolio of 20-25 high conviction stocks, with no restrictions on sector exposure. While picking stocks in the portfolio, the focus is on investing in businesses with strong earnings growth, cash generating capital-light business model, high ROCE, ROE, and attractive valuation relative to its peers. Typically, the fund managers stay away from companies that have run up beyond fundamentals and where margin of safety is low. The fund is overweight financials, technology and healthcare and has added pharma stocks like Abbott and Dr Reddy’s in October.

Sundaram Select Focus Fund
Fund Manager: Rahul Baijal
Assets under management: Rs 1046 cr
Lumpsum returns (3/5 year %): 16.2/9.42
SIP returns: 3/5 year (%) annualised: 12.66/12.25
Top 3 holdings: HDFC Bank, Reliance, ICICI Bank
Top 10 stocks (%) holding: 64%
The fund manager runs a 30 stock portfolio, with a focus on large caps. While 80-90% of the portfolio is in large cap stocks, a small portion is allocated to mid cap stocks. Being overweight on banking and financials, and underweight on pharma and low weight technology has helped the fund outperform. The fund manager buys stocks with a high visibility of earnings growth, quality and at reasonable valuations.

SBI Focused Equity Fund
Fund Manager: R Srinivasan
Assets under management: Rs 6,125 cr
Lumpsum returns (3/5 year %): 14.34/13.66
SIP returns: 3/5 year (%) annualised: 13.48/13.65
Top 3 holdings: HDFC Bank, SBI, P&G
Top 10 stocks (%) holding: 60%
Known in its earlier avatar as SBI Emerging Business, the scheme has beaten its benchmark over time frames of 1-, 3-, 5- and 10 years. Managed by R Srinivasan for the last 10 years, the fund runs a concentrated portfolio with two-thirds of its assets in large caps and the balance in mid caps. The scheme is benchmark agnostic and the fund is overweight financials, FMCG and engineering, and underweight technology and automobiles.

Motilal Oswal Focused 25 Fund
Fund Manager: Siddarth Bothra
Assets under management: Rs 1,184 cr
Lumpsum returns (3/5 year %): 12.84/11.85
SIP returns: 3/5 year (%) annualised: 11.07 /11.55
Top 3 holdings: HDFC Life Insurance, HDFC Bank, ICICI Bank
Top 10 stocks (%) holding: 71%
The scheme has one of the most concentrated portfolios in the equity mutual fund space with just 20-25 stocks in the portfolio. The top 10 picks account for 71% of its portfolio, with the top 5 accounting for 44% of the portfolio. The portfolio primarily consists of large-caps with financials accounting for 46%. Staying away from PSUs, utilities has helped the scheme come up with a stellar performance in the last one year.

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