Large-cap Funds underperformed Mid-cap Funds and Small-cap Funds in 2020 and 2021. However, the attractiveness of mid-caps and small-cap stocks compared to large-cap stocks may decline in 2022.

Owing to the uncertainty arising from the future course of the pandemic and expectations of a hike in interest rates, the equity market could witness higher volatility in the coming year. Notably, Large-cap Funds tend to outperform Mid-cap Funds and Small-cap Funds during uncertain and volatile market conditions.

In view of this, investors can consider trimming their allocation to smaller caps and shift allocation to Large-cap Funds. Investing in Large-cap Funds can give you the benefit of stability of the portfolio and steady growth of capital over the long term.

SBI BlueChip Fund is one of the well-managed schemes in the Large-cap Funds category that has generated decent risk-adjusted returns for its long-term investors.

Graph 1: Growth of Rs 10,000 if invested in SBI BlueChip Fund 5 years ago

Data as on December 29, 2021
(Source: ACE MF) 

SBI BlueChip Fund is a popular and one of the largest schemes in the large-cap funds category that has the mandate to invest a minimum 80% of its assets in stocks of large-sized companies. Along with focus on large caps, the fund manager dynamically manages its allocation in mid-cap stocks depending on the market outlook and prevailing valuations. Having a track record of nearly 16 years, SBI BlueChip Fund has delivered reasonable long-term returns for its investors. However, the fund has at times struggled and found it difficult to outpace the benchmark index, particularly during bull phases. Nonetheless, being a well-managed fund, SBI BlueChip Fund still holds superior growth potential and has shown a significant uptrend in performance in the recent recovery phase. Over the last 5 years, SBI BlueChip Fund has generated returns at a CAGR of around 16.4%, as against 17.6% CAGR delivered by its benchmark S&P BSE 100 – TRI index. An investment of Rs 10,000 in the fund 5 years back would have now grown to Rs 21,341.

Table: SBI BlueChip Fund’s performance vis-a-vis category peers

Scheme Name	Corpus (Cr.)	1 Year	2 Year	3 Year	5 Year	7 Year	Std Dev	Sharpe
Canara Rob Bluechip Equity Fund	5,208	26.18	24.80	22.49	20.79	14.98	18.89	0.27
Axis Bluechip Fund	33,519	22.12	20.60	20.75	21.79	14.63	17.53	0.26
UTI Mastershare	9,356	30.41	24.26	20.12	18.04	13.22	20.06	0.23
Mirae Asset Large Cap Fund	29,961	28.42	21.02	18.81	18.82	15.26	21.29	0.21
SBI BlueChip Fund	31,106	26.64	21.10	18.34	16.36	13.77	21.92	0.20
ICICI Pru Bluechip Fund	30,122	29.58	20.88	17.61	17.09	13.35	21.20	0.19
Franklin India Bluechip Fund	6,620	32.45	22.79	17.12	14.95	12.00	22.89	0.18
Aditya Birla SL Frontline Equity Fund	21,542	28.02	20.69	16.72	15.70	12.58	21.62	0.18
Nippon India Large Cap Fund	10,800	32.52	18.06	14.87	16.63	12.38	24.39	0.16
HDFC Top 100 Fund	20,607	28.63	16.66	14.01	14.97	10.94	23.56	0.14
S&P BSE 100 – TRI		26.00	20.64	17.60	17.57	12.66	21.66	0.19

Returns are point to point and in %, calculated using Direct Plan – Growth option. Those depicted over 1-Yr are compounded annualised.
Data as on December 29, 2021
(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.

In the last 1-year, 2-year, and 3-year period, SBI BlueChip Fund’s performance has been nearly in line with its benchmark S&P BSE 100 – TRI. However, over a 5-year period the fund has trailed the benchmark by a percentage point. Notably, the fund’s performance had slipped between CY 2018 and 2019, which has impacted its returns. Most other prominent large-cap peers too struggled to keep up their performance during this period. Over the longer time period of 7 years, SBI BlueChip Fund has maintained a decent lead over the benchmark and generated an alpha of about a percentage point, and has also outperformed the category average.

SBI BlueChip Fund has encountered reasonable volatility. It has generated decent risk-adjusted returns (as denoted by the Sharpe ratio), which is well in line with its benchmark and the category average and has fared better than many other prominent large-cap peers.

Investment strategy of SBI BlueChip Fund

Being categorised under Large-cap funds, SBI BlueChip Fund has a mandate to invest a minimum 80% of its assets in large-cap stocks. While the fund’s portfolio remains biased towards large-caps, it does make opportunistic allocations to mid-caps, which is kept well within the mandated limit. Erstwhile, the fund maintained its own definition of large-caps, but now has to stick to the list provided by AMFI. SEBI has stipulated that the first 100 stocks by market capitalisation will be considered as large-caps.

The fund manager aims to invest in such large-sized companies that have an established business presence, good reputation, healthy brand equity, and are possibly market leaders in their industries. The investment team also aims to keep an eye on consistency in management performance, change in leadership, as well as key management decisions that can affect the outlook of the business.

SBI BlueChip Fund usually holds about 50-60 stocks in its portfolio and follows a buy-and-hold investment strategy, which reflects the strong long-term conviction the fund management has while picking stocks for the portfolio. The funds turnover ratio has ranged between 10%-20% in the last one year, indicating low churn in the portfolio.

Graph 2: Top portfolio holdings in SBI BlueChip Fund

Holding in (%) as of November 30, 2021
(Source: ACE MF) 

As of November 30, 2021, SBI BlueChip Fund held a well-diversified portfolio of as many as 56 stocks. The top-10 stocks accounted for around 47.8% of the portfolio. HDFC Bank topped the list with an allocation of around 8.4%, followed by some other popular large-cap names like ICICI Bank, Infosys, Reliance Industries, L&T, HCL Technologies, HDFC Ltd., and so on. Notably, the top portfolio holdings contain a good mix of stocks belonging to different sectors.

In the last one year, stocks of ICICI Bank, Infosys, L&T, SBI, HCL Technologies, among others have turned out to be the major contributors to its gains. However, its holdings in Hero MotoCorp, Strides Pharma Science, Aurobindo Pharma, Eicher Motors, among others slightly dragged down the fund’s performance during the period.

Nearly one-third of SBI BlueChip Fund’s portfolio is exposed to Banking and Finance stocks, of which banks account for 21.2% while other finance stocks account for 11%. Infotech, Engineering, Auto, Pharma, Petroleum, Consumption, and Auto Ancillaries are the other top holdings with an allocation in the range of around 4%-11% each. The top 5 sectors in the fund’s portfolio together account for around 59% of its assets.

Suitability

SBI BlueChip Fund holds a commendable performance track record over longer time periods. It has done well to curb the downside risk, while the performance on the upside has been in line with that of the benchmark. The fund’s strategic minor allocation to mid-caps helps it generate significant growth during mid-cap rallies, leaving many other large-cap funds behind. Though the mid-cap allocation exposes the fund to a higher risk, the fund management made sure that the risk is kept within limits.

Notably, SBI BlueChip Fund is completely benchmark agnostic, and its allocation to certain stocks/sectors may significantly deviate from the benchmark. Thus, the returns of the fund may not always be in line with the benchmark.

SBI BlueChip Fund is suitable for long-term investors looking for stability as well as high growth from a large-cap biased fund over a long-term investment horizon of at least 3 to 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