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

Tata Equity P/E Fund is a Value Fund with a multi-cap bias that has consistently ranked among above-average performers and has rewarded investors with superior risk-adjusted returns over the long term.

What is the growth of Rs 10,000 invested in Tata Equity P/E Fund five years ago?

Past performance is not an indicator of future returns
Data as of February 07, 2024
(Source: ACE MF, data collated by PersonalFN) 

Tata Equity P/E Fund is a Value Fund that aims to buy quality and solid growth potential stocks available at discounted valuations. The fund uses the Price to Earnings (P/E) ratio to identify and shortlist attractively priced stocks for the portfolio. Subsequently, the fund employs other quantitative and qualitative parameters to determine the investment-worthiness of the selected stocks. Launched nearly two decades ago in June 2004, Tata Equity P/E Fund boasts a commendable long-term track record.

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Tata Equity P/E Fund has registered growth in NAV at a compounded annualised growth rate of around 19% since its inception. The fund adopts a market cap and sector-agnostic approach, allowing the fund manager to make portfolio adjustments based on the potential of the underlying stocks, market caps, or sectors. It has done well under the supervision and expertise of Mr Sonam Udasi who focuses on the growth potential, diversification, and liquidity aspects to create a high-conviction portfolio.

Being a value-oriented fund, Tata Equity P/E Fund might experience intermittent underperformance in the short run, but may reward patient investors in the long run. Notably, the fund underperformed the benchmark during CY 2020 and CY 2021 due to its low exposure to certain sectors that drove the rally in the broader index. However, from the CY 2022 onwards, Tata Equity P/E Fund has demonstrated remarkable improvement in performance, securing a spot among the above-average performers in the Value Fund category.

Over the past five years, Tata Equity P/E Fund has grown at a compounded annualised rate of 20.3%, which is higher than the 18.3% CAGR generated by its benchmark Nifty 500 – TRI. An investment of Rs 10,000 in Tata Equity P/E Fund five years back would now be worth Rs 25,158 compared to Rs 23,208 in the benchmark index.

How has Tata Equity P/E Fund performed on a rolling return basis?

Scheme Name	Corpus (Cr.)	1 Year	2 Year	3 Year	5 Year	7 Year	Std Dev	Sharpe
Bandhan Sterling Value Fund	7,774	21.46	18.14	37.10	16.33	18.00	15.62	0.44
Templeton India Value Fund	1,672	23.73	19.67	34.69	16.06	15.80	15.98	0.40
ICICI Pru Value Discovery Fund	37,570	21.82	19.35	30.67	17.61	15.89	12.55	0.46
JM Value Fund	406	31.98	18.49	29.48	17.02	17.33	15.11	0.43
HSBC Value Fund	10,761	25.86	17.16	29.30	15.82	16.13	15.05	0.40
Nippon India Value Fund	6,786	21.15	15.03	28.37	16.15	16.30	15.89	0.37
Aditya Birla SL Pure Value Fund	5,453	25.69	14.25	27.67	10.32	12.08	17.15	0.33
Union Value Fund	200	19.78	14.15	25.20	19.33	—	14.52	0.34
HDFC Capital Builder Value Fund	6,500	17.69	12.91	25.20	12.59	14.41	14.58	0.32
Tata Equity P/E Fund	6,996	22.56	15.64	24.17	13.63	15.61	13.96	0.35
UTI Value Fund	8,468	15.47	10.98	23.14	14.71	14.34	13.64	0.28
LIC MF Long Term Value Fund	103	14.36	10.52	22.56	14.82	—	14.68	0.28
Quantum Long Term Equity Value Fund	1,009	16.09	10.33	22.29	11.06	11.30	13.08	0.27
Groww Value Fund	14	15.69	11.14	21.88	10.66	11.07	13.77	0.31
DSP Value Fund	749	16.79	9.86	18.96	—	—	11.61	0.30
Nifty 500 – TRI	—	14.51	10.85	23.13	13.89	14.67	14.55	0.27

The securities quoted are for illustration only and are not recommendatory.
Returns are on a rolling basis and in %. Direct Plan-Growth option. Those depicted over 1-Yr are compounded annualised.
Data as of February 07, 2024
(Source: ACE MF, data collated by PersonalFN)
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.

Tata Equity P/E Fund has established a decent track record over the long term. Although the fund trailed the benchmark and the category average during CY 2020 and CY 2021, it has shown a remarkable recovery in the past couple of years. Over the last 2-year period, Tata Equity P/E Fund has outpaced the benchmark by around 5 percentage points and also outpaced several of its peers, thus emerging as one of the above-average performers in the Value Fund category. Over the longer time frame of 5 years and 7 years, the fund has outpaced some of its peers, while its performance was reasonable compared to the benchmark.

In terms of volatility (standard deviation), Tata Equity P/E Fund has exhibited satisfactory levels compared to its peers and the benchmark. Additionally, its Sharpe ratio (0.35), which measure the risk-adjusted returns, currently surpass the benchmark and is nearly in line with the category average. With this, Tata Equity P/E Fund has the potential to reward investors with reasonable risk-adjusted returns over the long run.

What is the investment strategy of Tata Equity P/E Fund?

Tata Equity P/E Fund adopts a portfolio management strategy centred around value investing. The fund seeks to identify undervalued companies which are poised for a sharp turnaround or a substantial improvement in profitability. It invests at least 70% of its assets in shares that are trading at a P/E which is lower than the 12-month trailing P/E of the S&P BSE Sensex on a rolling basis. These stocks may or may not be a part of the S&P BSE Sensex.

While selecting stocks, Tata Equity P/E Fund also considers other parameters such as management competitiveness, business competitiveness, growth prospects, etc. The fund seeks growth within stocks identified as value by utilising the following factors:

1. Sectors expected to grow over the next 1 to 1.5 years;

2. Companies which are market leaders and may outperform the respective sectors;

3. Consistent RoE, RoC, and other return ratios over the last 5-10 years; and

4. Liquidity of the stock.

Tata Equity P/E Fund is market cap and benchmark agnostic and its sector overweight/underweight positions are solely determined by the conviction of the fund manager.

What are the top portfolio holdings in Tata Equity P/E Fund?

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

Tata Equity P/E Fund usually holds a compact portfolio of around 35 to 40 stocks, investing predominantly in the large-cap segment. As of December 31, 2023, the fund held 42 stocks in its portfolio diversified across sectors. It held its top exposure in popular large-cap names like HDFC Bank, ITC, NTPC, Hindustan Aeronautics, and ICICI Bank, along with a few stocks from the lower market caps such as Hero MotoCorp and Radico Khaitan.

The top 10 holdings in the fund’s portfolio collectively account for nearly 45% of the total assets. With an emphasis on a disciplined investment strategy, Tata Equity P/E Fund typically maintains stocks in its portfolio with a long-term view. Accordingly, the fund has exhibited a moderate turnover ratio ranging between 45% and 60% in the last one year.

Over the last 2 years, Tata Equity P/E Fund has benefitted the most from its exposure to ITC, Hindustan Aeronautics, ICICI Bank, Bajaj Auto, and Power Grid Corporation, which have helped it generate significant gains for investors. The fund also benefitted from names like Radico Khaitan, HDFC Bank, Escorts Kubota, Sun TV Network, and Reliance Industries, which were among the other top contributors to its gains.

Tata Equity P/E Fund’s portfolio is skewed towards Financials, that form around 30.7% of the fund’s portfolio. Consumption, Auto, and Power, are among the other prominent sectors in the fund’s portfolio having combined allocation of about 30% of its assets. It also held exposure to Engineering, Petroleum, Infotech, Mining, Cement, and Auto Ancillaries. Around 60.3% of its portfolio is spread across the top 5 sectors. Tata Equity P/E Fund’s portfolio has a well-balanced allocation towards cyclicals and defensive sectors.

Is Tata Equity P/E Fund suitable for my investment goals and risk tolerance?

Tata Equity P/E Fund surpassed the benchmark and many of its peers by a wide margin during various bull and bear market phases in the past, which enabled it to deliver higher returns for investors in the scheme. It has achieved this without exposing the portfolio to excess risk. The fund has displayed reasonable levels of volatility in the category, while its risk-adjusted returns are superior compared to the benchmark and some of its peers.

Tata Equity P/E Fund adopts a market cap and sector-agnostic approach, but with a large-cap bias, and maintains diversification across market caps and sectors at all times. The fund managers decide the stock, sector, and market cap allocation based on their conviction, taking into consideration quantitative factors such as valuations, dividend yield, and potential to unlock value, along with qualitative factors such as management competitiveness, business competitiveness, etc.

With a fairly diversified portfolio, an experienced fund manager at the helm, and a preference for safety, Tata Equity P/E Fund appears well-positioned to navigate market fluctuations and generate superior returns over the long term.

Tata Equity P/E Fund is suitable for investors seeking a steady performer in the Value Fund with an investment horizon of at least 5 years.

Watch this video to find out the list of the best Value Cap Funds for 2024:

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