Welcome to PersonalFN’s weekly analysis on diversified equity mutual funds! In this issue, we have analysed 360 ONE Focused Equity Fund, highlighting its performance, peer comparison, investment strategy, fundamentals, portfolio, and suitability.

360 ONE Focused Equity Fund is a Focused Fund that has established itself as a category outperformer. Its remarkable performance has rewarded investors effectively by balancing the risk taken with substantial returns.

What is the growth of Rs 10,000 invested in 360 ONE Focused Equity Fund five years ago?

Past performance is not an indicator of future returns
Data as of December 05, 2023
(Source: ACE MF, data collated by PersonalFN) 

The erstwhile IIFL Focused Equity Fund was recently renamed as 360 ONE Focused Equity Fund following the rebranding of IIFL Mutual Fund to 360 ONE Mutual Fund. The fund aims to generate long-term capital appreciation by investing in a concentrated portfolio of a maximum of 30 high-conviction stock ideas.

The fund follows a multi-cap approach to invest across market cap segments but with a large-cap bias. 360 ONE Focused Equity Fund adopts a business cycle investment approach to determine sectors based on their potential to outperform or underperform. It accordingly takes concentrated exposure in stocks of sectors that are expected to perform well. The fund aims to identify strong growth companies offering favourable risk-reward ratios while avoiding allocation to value traps and short-term fads.

The fund’s performance deteriorated between 2017-2018 and 2022, causing a noticeable underperformance compared to the benchmark and several of its category peers. Nonetheless, the fund has a remarkable long-term track record, and it now stands among the above-average performers in the Focused Fund category across time periods. 360 ONE Focused Equity Fund’s robust performance over the years has attracted investors’ attention; its corpus has grown nearly five times in the last three years.

Over the past 5 years, 360 ONE Focused Equity Fund has registered a growth of around 23.8% CAGR, surpassing the 17% CAGR delivered by its benchmark S&P BSE 500 – TRI. An investment of Rs 10,000 in the fund 5 years ago would now be valued at Rs 29,140, while a simultaneous investment in its benchmark would now be worth Rs 21,890.

How has 360 ONE Focused Equity Fund performed in the past?

Scheme Name	Corpus (Cr.)	1 Year	2 Year	3 Year	5 Year	7 Year	Std Dev	Sharpe
HDFC Focused 30 Fund	6,942	23.63	24.43	31.85	19.78	16.55	14.48	0.47
Nippon India Focused Equity Fund	6,903	18.32	15.63	24.69	18.89	16.50	16.63	0.33
ICICI Pru Focused Equity Fund	5,589	22.08	16.90	24.69	19.86	16.54	14.42	0.37
Franklin India Focused Equity Fund	9,237	17.18	15.40	24.54	19.15	16.85	16.04	0.35
360 ONE Focused Equity Fund	4,887	22.78	14.23	22.31	23.84	19.62	14.72	0.31
SBI Focused Equity Fund	29,317	17.35	5.50	18.67	17.75	16.96	13.80	0.27
Aditya Birla SL Focused Fund	6,047	15.39	10.98	17.89	15.84	14.80	13.85	0.25
DSP Focus Fund	1,914	25.28	13.11	17.84	15.74	14.11	14.53	0.24
Motilal Oswal Focused Fund	1,651	15.33	10.64	14.39	15.07	14.48	13.86	0.18
Axis Focused 25 Fund	13,653	9.58	-0.96	9.43	12.51	14.76	16.95	0.09
S&P BSE 500 – TRI		17.11	13.13	20.55	16.95	16.47	14.67	0.28

The securities quoted are for illustration only and are not recommendatory.
Returns are point to point and in %, calculated using the Direct Plan-Growth option. Those depicted over 1-Yr are compounded annualised.
Data as of December 05, 2023
(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 before investing. Past performance is not an indicator for future returns. The percentage returns shown are only for indicative purposes.

360 ONE Focused Equity Fund is consistent performer that has delivered above-average returns for its investors across various time frames. Despite occasional bouts of underperformance in the short term, the fund’s ability to bounce back has resulted in strong performance and has contributed to its impressive long-term track record.

Over the longer 3-year, 5-year, and 7-year periods, 360 ONE Focused Equity Fund has outpaced the benchmark by approximately 2-7 percentage points. The fund’s short-term performance is also noteworthy, wherein it has outpaced the benchmark and many of its peers.

The superlative returns have helped the fund outscore in terms of risk-adjusted returns as well and stand strong vis-a-vis its category peers. While 360 ONE Focused Equity Fund has recorded volatility in line with the benchmark and the category average, its higher risk-adjusted returns as denoted by the Sharpe ratio (0.31), sets it apart. Overall, 360 ONE Focused Equity Fund has proved its potential to deliver above-average returns and ability to manage risk effectively.

What is the investment strategy of 360 ONE Focused Equity Fund?

Classified under the Focused Fund category, 360 ONE Focused Equity Fund has a mandate to allocate a minimum of 65% of its assets in equities investing in a maximum of 30 stocks. Accordingly, the fund holds a compact portfolio of maximum 30 high conviction stocks. The scheme endeavours to identify the sectors that are likely to do well in the medium term, based on the business cycle of the economy, and take focused exposure to securities of companies in the identified sectors. The sectors are actively monitored and changes are made to invest in sectors that will benefit from the current stage of the business cycle.

360 ONE Focused Equity Fund utilises a SCDV (Secular, Cyclical, Defensives and Value Trap) investment framework to identify high conviction stocks and determine its weightage in the portfolio:

S- Secular – Companies with consistent ROE & PAT growth > 15%

C- Cyclical – Companies with PAT growth > 15% but ROE < 15%

D- Defensive – Companies with ROE > 15% but PAT growth < 15%

V- Value Traps – Companies with both ROE & PAT growth < 15%

360 ONE Focused Equity Fund employs a bottom-up approach to pick stocks across market cap segments, with a predominant emphasis on large caps. Notably, the fund has maintained a low turnover ratio of approximately 20-30% in the past one year, signifying low churning in the portfolio.

What are the top portfolio holdings in 360 ONE Focused Equity Fund?

Holding in (%) as of October 31, 2023
(Source: ACE MF, data collated by PersonalFN) 

Being a Focused Fund, 360 ONE Focused Equity Fund holds a concentrated portfolio of maximum 30 high conviction stock ideas. As of October 31, 2023, the fund held 30 stocks in its portfolio. Top large-cap names like HDFC Bank, ICICI Bank, Infosys, Axis Bank, and Tata Motors currently figure among the top holdings in the fund’s portfolio. The top 10 stocks together account for 53.9% of its assets. Many of these stocks have been a part of the fund’s portfolio for over 2 years now.

360 ONE Focused Equity Fund has benefitted immensely from its holdings in L&T, Cyient, Axis Bank, ICICI Bank, Bharti Airtel, CCL Products (India), Tata Motors, SBI that contributed around 11% to its absolute gains in the last 2 years. Meanwhile, it booked profit in Bajaj Auto, Coal India, Dr Reddy’s Laboratories, Apollo Tricoat Tubes, and SRF, among others.

360 ONE Focused Equity Fund’s portfolio is skewed towards stocks in the Banking and Financial sector that collectively form around 34.7% of its assets. It also held major allocation to Infotech, Auto & Auto Ancillaries, and Engineering that together form another 35.5% of its holdings. The other core sectors in its holdings are Telecom, Power, and Chemicals, among others. The fund’s portfolio is fairly diversified across cyclical, defensive, and sensitive sectors.

Is 360 ONE Focused Equity Fund suitable for my investment goals and risk tolerance?

360 ONE Focused Equity Fund has built a commendable performance track record over the years. Over the long run, the fund has outperformed the benchmark and many of its prominent peers in the category while maintaining a prudent risk profile. The fund maintains a fairly-diversified portfolio invested across a range of quality stocks which it holds with a long-term view.

360 ONE Focused Equity Fund is benchmark agnostic. The fund manager adopts a business cycle investment approach to determine sector allocation based on the probability of their outperformance or underperformance. The fund takes concentrated exposure in sectors that are likely to do well in the medium to long term. This strategy can help it to deal with market volatility going ahead, and generate decent alpha for its investors.

360 ONE Focused Equity Fund is suitable for investors seeking decent alpha through a focused portfolio of high conviction stocks with a long-term view 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