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

JM Flexi Cap Fund is a less popular Flexi Cap Fund that has turned out to be a category outperformer by delivering robust gains in recent years and rewarding its investors with higher risk-adjusted returns. Its momentum-driven strategy and substantial exposure to lower market cap has enabled it to generate high alpha over the years.

What is the growth of Rs 10,000 invested in JM Flexi Cap Fund five years ago?

Past performance is not an indicator of future returns
Data as of August 27, 2024
(Source: ACE MF, data collated by PersonalFN) 

Launched in September 2008, JM Flexi Cap Fund aims to invest dynamically across stocks and sectors. Being a Flexi Cap Fund, the fund has the flexibility to invest across market caps and sectors without any restrictions. The fund was earlier known as JM Multi Cap Fund and usually maintained a large-cap dominated portfolio, allocating only a minor portion in mid and small-cap stocks. However, after SEBI introduced the Flexi Cap Fund category in 2020, the fund underwent recategorisation.

[Read: Flexi Cap Funds: A Sensible Choice That’s Attracting Investors]

Under its new flexi-cap mandate, the fund has significantly pared its large-cap stake while simultaneously increasing exposure in lower market caps (current exposure is about 60%). This strategy has enabled it to benefit from the stellar rally in the broader market over the last couple of years. Moreover, it carries high turnover ratio compared to peers indicating a momentum-driven approach. A momentum-based strategy involves picking stocks that are on a rising trend, in anticipation of the trend continuing in the future as well, while at the same time shunning stocks that are lagging. Subsequently, JM Flexi Cap Fund managed to generate a significant alpha over the benchmark and the category in recent years. Its outperformance has attracted investors’ attention and its corpus has now soared to Rs 3,855 crore as of July 2024 from just Rs 209 crore as of July 2022.

In the last five years, JM Flexi Cap Fund’s NAV has appreciated at a CAGR of 29.2%; the benchmark BSE 500 – TRI grew by 22.6% during this period. An investment of Rs 10,000 in JM Flexi Cap Fund five years back would have now more than tripled to Rs 35,751 compared to a valuation of Rs 27,690 for a simultaneous investment in its benchmark.

How has JM Flexi Cap Fund performed on a rolling return basis?

Scheme Name	Corpus (Cr.)	1 Year	2 Year	3 Year	5 Year	7 Year	Std Dev	Sharpe
Quant Flexi Cap Fund	7,436	44.39	27.49	32.23	30.24	22.93	17.95	0.32
JM Flexicap Fund	3,855	50.39	30.55	29.57	23.75	19.19	15.48	0.45
HDFC Flexi Cap Fund	61,572	35.26	26.26	28.45	20.24	17.46	13.90	0.42
Bank of India Flexi Cap Fund	1,700	48.76	26.46	28.41	—	—	16.16	0.36
Franklin India Flexi Cap Fund	17,417	35.60	21.69	24.58	19.87	16.20	14.01	0.34
ICICI Pru Flexicap Fund	16,772	33.44	22.50	23.70	—	—	12.26	0.39
Parag Parikh Flexi Cap Fund	75,956	34.53	19.46	22.96	23.85	20.56	12.26	0.31
Edelweiss Flexi Cap Fund	2,248	34.15	20.80	22.62	19.43	17.47	14.41	0.32
HSBC Flexi Cap Fund	4,982	36.20	21.52	21.31	17.30	14.43	13.74	0.33
Nippon India Flexi Cap Fund	8,206	34.49	19.56	21.06	—	—	14.58	0.28
BSE 500 – TRI		29.38	17.73	20.21	17.91	15.72	14.40	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. Risk ratios are calculated over a 3-year period assuming a risk-free rate of 6% p.a.
Data as of August 27, 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.

In recent years, JM Flexi Cap Fund has often found a place among the top performers in the Flexi Cap Fund category, and has also distinctly outpaced its benchmark S&P BSE 500 – TRI. With a substantial allocation to mid and small-cap stocks, the fund has benefitted immensely from the rally in the segment. It delivered rolling returns of 30.6% in the last 2-year period, thereby outperforming the benchmark by around 12.8 percentage points and evolving as a category topper. This superior performance has helped it significantly improve its returns across periods, helping it generate a noteworthy lead over the benchmark and the majority of its peers.

While the volatility registered by the fund is higher than the category and the benchmark, it has managed to reward investors adequately. Its risk-adjusted return as denoted by the Sharpe ratio (0.45) is much ahead of the benchmark index and is currently the best in the category.

What is the investment strategy of JM Flexi Cap Fund?

JM Flexi Cap Fund follows a dynamic investment approach to adapt investments in line with market conditions. It aims to maintain a well-balanced exposure across market caps and sectors with a view to navigating various market phases. The fund’s primary focus is to invest in stocks across sectors having high growth potential along with high earnings quality as determined by EPS growth, PEG, RoE, cash flows, and debt-to-equity ratio, among others. It also evaluates them based on their management capabilities, governance standards, and competitive advantage.

JM Flexi Cap Fund’s portfolio witnesses frequent changes; its turnover ratio in the last one year is around 100-150%. But while the fund holds many of its stocks with a short-term view, it maintains high conviction in certain stocks/sectors to generate superior risk-adjusted returns.

What are the top portfolio holdings in JM Flexi Cap Fund?

Holding in (%) as of July 31, 2024
(Source: ACE MF, data collated by PersonalFN) 

With substantial increase in its corpus in the last couple of years, JM Flexi Cap Fund now holds a fairly large portfolio of 60-65 stocks, compared to 35-45 stocks earlier. As of July 31, 2024, the fund held 65 stocks in its portfolio with the top 10 stocks accounting for about 28% of its assets. Its top holdings comprise mainly large-cap stocks such as REC, HDFC Bank, Infosys, L&T, and ICICI Bank with a few mid-cap names such as Petronet LNG and Grasim Industries. Notably, the fund has restricted allocation in each stock to under 5%.

In the last two years, JM Flexi Cap Fund benefitted the most from its holdings in L&T, Trent, SBI, ICICI Bank, Infosys, and Schaeffler India. It has also gained significantly from its exposure in REC, Mahindra & Mahindra, SRF, Ahluwalia Contracts, Kirloskar Oil Engines, Blue Star, Kirloskar Brothers, Jyothy Labs, Gulf Oil Lubricants, Tata Motors – DVR Ordinary, Zomato, Global Health, among many others, that have risen in value since the time the fund added them in its portfolio. Meanwhile, it booked profit in Bank of Baroda, NTPC, Birla Corporation, Sanofi India, The Phoenix Mills, Can Fin Homes, Poonawalla Fincorp, Birlasoft, among others.

In terms of sectors, unlike most of its peers, JM Flexi Cap Fund is underweight in the Banking sector. it currently holds higher exposure to Engineering, followed by Banks, Infotech, Consumption, Finance, Construction, and Pharma. It has also diversified its portfolio across Cement, Oil & Gas, Auto Ancillaries, Consumer Durables, and Auto, Fertiliser, Power, and Petroleum, among others.

Is JM Flexi Cap Fund suitable for my investment goals and risk tolerance?

With extraordinary performance recorded in recent years, JM Flexi Cap Fund’s returns across time frames look encouraging. The fund has delivered satisfactory performance across various bull and bear market phases in the past and maintains a robust long-term performance record. Moreover, it has rewarded investors with impressive risk-adjusted returns.

JM Flexi Cap Fund holds an actively managed portfolio spread across market caps with well-balanced exposure in each segment and shifts the allocation dynamically based on market conditions. With flexible portfolio strategies complemented by risk mitigation techniques, the fund has the potential to perform well in the long run.

JM Flexi Cap Fund is suitable for investors looking for healthy long-term returns through exposure across market caps and have an investment horizon of at least 5-7 years.

Watch this video to find out the best Flexi Cap Funds of 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. Registration granted by SEBI, Membership of BASL and certification from NISM no way guarantee performance of the intermediary or provide any assurance of returns to investors.

This article first appeared on PersonalFN here