Amid extreme volatility and downfall witnessed over the last 2 years, large cap stocks have outshone mid and small caps by a huge margin and may even drive the recovery. These stocks are better poised to handle market volatility due to their stable business operation, quality of management, competitive advantage and sustainable business models. Thus, mutual funds aiming to invest in large cap stocks can enable steady rise of wealth over long-term.

Aditya Birla SL Frontline Equity Fund (ABSLFEF) is one such large cap fund that aims for wealth creation through investment in blue chip companies.

ABSLFEF is one of the largest funds in the category with an asset size of Rs 21,211 crore under management. It is managed by Mr Mahesh Patil who has over 25 years of experience in equities and fund management.

Graph 1: Growth of Rs 10,000 if invested in ABSLFEF 5 years ago

Graph 1: Growth of Rs 10,000 if invested in ABSLFEF 5 years ago

 Data as on November 11, 2019
(Source: ACE MF) 

Over the last five years, ABSLFEF has performed fairly well. If you had invested Rs 10,000 in ABSLFEF five years back on November 12, 2014 it would have grown to Rs 15,495 as on November 11, 2019. This translates into compounded annualised growth rate of 9.15%. In comparison, a simultaneous investment of Rs 10,000 in its benchmark Nifty 50 – TRI would now be worth Rs 15,152 (a CAGR of 8.67%). In the last five years the fund has generated moderate lead over the index; however, the margin of outperformance has diminished in the last two years.

Graph 2: ABSLFEF year-on-year performance

Graph 2: ABSLFEF year-on-year performance

 *YTD as on November 11, 2019
(Source: ACE MF)

Launched in August 2002, ABSLFEF has a track record of over 17 years to its credit. The year-on-year performance comparison of the scheme relative to its benchmark Nifty 50 – TRI shows that the fund outperformed the benchmark in 7 out of last 10 calendar years i.e. in CY 2009 and CY 2011 to CY 2016. Its performance was nearly in line with the benchmark in CY 2010 and CY 2017. Since the previous year 2018, the fund is struggling to catch up with the index. While it registered negative returns in CY 2018; it has shown significant improvement in performance in the current year 2019.

Table: ABSLFEF performance vis-a-vis category peers

Scheme Name Corpus (Cr.) 1 Year (%) 2 Year (%) 3 Year (%) 5 Year (%) Std Dev Sharpe
Axis Bluechip Fund 8,749 10.87 16.77 15.76 14.45 12.68 0.22
Mirae Asset Large Cap Fund 15,897 6.20 11.56 15.63 16.82 12.77 0.14
Nippon India Large Cap Fund 13,091 4.79 10.98 14.33 15.13 14.77 0.09
HDFC Top 100 Fund 18,507 6.59 9.66 14.20 12.64 14.22 0.08
Canara Rob Bluechip Equity Fund 257 7.13 11.55 13.48 12.77 12.78 0.13
Indiabulls Blue Chip Fund 191 4.35 10.01 13.44 13.22 13.65 0.10
ICICI Pru Bluechip Fund 24,132 3.39 9.76 13.33 13.39 11.89 0.10
Edelweiss Large Cap Fund 172 4.09 11.11 12.44 12.95 13.18 0.11
HSBC Large Cap Equity Fund 673 2.41 8.07 12.27 11.31 12.90 0.09
IDFC Large Cap Fund 457 1.64 8.44 12.09 10.29 12.74 0.09
Invesco India Largecap Fund 202 3.63 9.96 11.99 13.92 11.99 0.10
Tata Large Cap Fund 815 4.37 8.60 11.30 12.18 13.15 0.08
UTI Mastershare 6,174 3.22 9.26 11.22 12.19 11.99 0.07
Essel Large Cap Equity Fund 104 2.04 6.63 11.21 12.45 13.55 0.06
Aditya Birla SL Frontline Equity Fund 21,211 1.61 7.01 11.11 13.08 12.62 0.04
PGIM India Large Cap Fund 329 3.55 8.33 11.06 12.78 12.06 0.09
Kotak Bluechip Fund 1,444 3.54 8.47 11.01 13.17 12.97 0.08
BNP Paribas Large Cap Fund 808 5.67 9.46 11.01 13.41 13.29 0.12
LIC MF Large Cap Fund 306 5.40 8.76 10.78 11.49 12.85 0.09
L&T India Large Cap Fund 524 3.76 8.25 10.60 11.85 12.89 0.07
NIFTY 50 – TRI 6.83 11.73 13.36 11.26 12.29 0.14

Returns are on a rolling basis and in %, calculated using Direct Plan – Growth option. Those depicted over 1-Yr are compounded annualised.
Data as on November 11, 2019
(Source: ACE MF)

*Please note, this table only represents the best performing funds based solely on past returns and is NOT a recommendation. Mutual Fund investments are subject to market risks. Read all scheme related documents carefully. Past performance is not an indicator for future returns. The percentage returns shown are only for indicative purposes.

ABSLFEF’s performance in 1-year, 2-year and 3-year rolling period has not been impressive as it trailed both the benchmark and category average. However, during longer time frame of 5 year, its rolling returns were slightly better than the index and category average.

While the fund lagged many top performers in the large cap category such as Axis Bluechip FundMirae Asset Large Cap FundNippon India Large Cap Fund and HDFC Top 100 Fund, it fared better than many other large cap peers.

On risk-return parameters, the fund’s volatility was nearly in line with the benchmark and category average. But it has disappointed in terms of delivering superior risk-adjusted returns.

Investment strategy of ABSLFEF

Categorised as large cap fund, ABSLFEF is mandated to invest 80% of its assets in equity and equity related instruments of large cap companies. The fund seeks to generate long-term growth of capital through a portfolio with a target allocation of 100% equity.

It aims to create a diversified portfolio by investing across industries and sectors while targeting similar sectoral weights as that of the benchmark index. However, the stocks making up those sectoral weights in the scheme’s portfolio can be different from those comprising the relevant sectoral weights in the index.

Mandated to invest at least 80% of its assets in top 100 companies by market capitalisation, the fund diversifies some portion of its portfolio beyond top 100 companies but preferably those present in the S&P BSE 200 index universe. The scheme endeavours to invest in frontline stocks that in the opinion of the fund manager have the potential to provide superior growth opportunities.

ABSLFEF has the flexibility to invest up to 20% of its assets in cash and debt instruments.

Graph 3: ABSLFEF portfolio allocation and market capitalisation trend

Graph 3: ABSLFEF portfolio allocation and market capitalisation trend

 Holding (in %) as on October 31, 2019
(Source: ACE MF)

ABSLFEF predominantly invests in equities of large cap companies where it allocates 80-85% of its portfolio. The fund also explores growth opportunities in mid and small caps, though it has slightly cut down the allocation in this segment in the last one year. It allocates 10-15% of its assets in mid caps, while it has a marginal allocation of less than 2% in small caps. The fund aims to remain fully invested in equities. Its non-equity exposure in the last one year is under 6%.

Graph 4: ABSLFEF top portfolio holdings

Holding (in %) as on October 31, 2019
(Source: ACE MF)

As on October 31, 2019, ABSLFEF held 63 stocks in its portfolio across various sectors. The top 10 stocks constitute 49.5% of the portfolio and are mainly concentrated towards Banks. HDFC Bank has the highest allocation of 9.7%, followed by ICICI Bank at 8.7%, Reliance Industries and Infosys at 5.2% each. Rest of the stocks in the top 10 holdings have allocation in the range of 2.5-4%.

In terms of sector, financial services form a major part of the holdings at 41.3% which includes allocation to Banks at 29% and Finance at 12.3%. Consumption (9.9%), Infotech (9.3%) and Petroleum Products (7.6%) are the other major holdings in the portfolio. The fund also has significant exposure to Engineering, Pharmaceuticals, Auto, Power and Cement.

Top contributors

Among the stocks in the portfolio, HDFC Bank contributed the most to the fund’s return with a weighted return of 2.6% in the last one year. ICICI Bank, Bajaj Finance, Reliance Industries and HDFC were the other major contributors to the portfolio gains. Most of these stocks are part of the fund’s top holdings.

On the other hand stocks like Aurobindo Pharma, Mahindra & Mahindra, Zee Entertainment Enterprises and ITC eroded some of its gains.

Suitability of ABSLFEF

Even though the fund’s performance has been under pressure in the past couple of years, it has rewarded investors over longer time frames. Given its long term track record of stable returns and experienced fund manager at the fore the fund has the potential to make a strong comeback. Large caps have the potential to generate stable returns over long term with lower risk. However, its potential for very high growth is limited. This makes it suitable for investors with moderately high risk appetite and investment horizon of at least 5 years.

Note: This write up is for information purpose and does not constitute any kind of investment advice or a recommendation to Buy / Hold / Sell a fund. Returns mentioned herein are in no way a guarantee or promise of future returns. As an investor, you need to pick the right fund to meet your financial goals. If you are not sure about your risk appetite, do consult your investment consultant/advisor. Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.

This article first appeared on PersonalFN here.

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