3 Best Bluechip Funds to Add Stability to Your Portfolio

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  • May 13, 2022 - 3 Best Bluechip Funds to Add Stability to Your Portfolio

3 Best Bluechip Funds to Add Stability to Your Portfolio

May 13, 2022

3 Best Bluechip Funds to Add Stability to Your Portfolio

The markets in the US recently touched their 2022 lows and their Indian counterparts, too, aren't far away from their Year-to-Date (YTD) lows.

Under such a scenario many of you might be wondering where should you invest your money right now in mutual funds when the stock markets are falling?

After the second wave of the Covid-19 pandemic, economic recovery has been strong but extremely inflationary.

Now that the major global central banks have started hiking policy rates, including our own RBI, and with bond yields moving up, equity investors across the globe are having sleepless nights. Such has been the market volatility.

That being said, India's volatility index (VIX) is nowhere close to its pandemic highs of May 2020, although it's steadily inching up since the Russia-Ukraine war began.

Graph 1: Rising volatility is making the Indian investors jittery

A majority of economic indicators have thankfully surpassed their pre-covid levels, but the rally in the bond yields is taking much attention away from equities.

Nevertheless, the correction or selloff in the equity markets offers an opportunity to buy. Given the heightened volatility, you may consider investing in bluechip stocks and largecap mutual funds.

You see, largecaps due to the scale operations, strong balance sheets, and stable businesses, potentially offer you, the investor, relatively stable returns over smaller companies (midcaps, smallcaps, and microcaps) during challenging market phases.

Largecap mutual funds are open-ended equity schemes investing at least 80% of their total assets in the equity and equity-related instruments of largecap or bluechip companies.

These companies as classified by the capital market regulator SEBI are the top-100 companies on a full market capitalisation basis.

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As per the list released by AMFI-based on the average market capitalisation of companies for the period ended on 31 December 2021, Reliance Industries, is the largest listed company in India with a market capitalisation of Rs 15.02 lakh crore.

The other heavyweights include names such as TCS Ltd, HDFC Bank Ltd, HDFC Ltd, Infosys, Hindustan Unilever, ICICI Bank, SBI, Kotak Bank, Bajaj Finance, Bajaj Finserv Bharti Airtel, L&T, Tata Motors, Wipro, among a host of others.

JSW Energy is the 100th largecap stock with a market capitalisation of Rs 47,757 crore as per the AMFI data as of 31 December 2021.

The top 100 companies account for nearly 66% of the total value of stocks listed on the national stock exchange.

In other words, largecap funds track the performance of broader markets to a large extent without exposing you to excess volatility compared to midcap and smallcap companies.

Among 30 largecap funds PersonalFN analysed, 26 have a track record of 5 years or more. By and large, largecap funds on average, failed to beat Nifty-100-Total Return Index (TRI) across timeframes.

But they have been less volatile and their risk-adjusted returns are superior to those generated by Nifty-100 TRI.

Table 1: Performance of the 3 best Largecap Funds Across Timeframes

Scheme Name Returns (Absolute %) Returns (CAGR %) Risk-Ratios
1 Year 2 Years 3 Years 5 Years 7 Years SD Annualised Sharpe
Canara Rob Bluechip Equity Fund 9.2 30.6 17.4 14.7 13.6 19.54 0.22
Mirae Asset Large Cap Fund 12.1 33.8 14 13.3 14 21.81 0.17
Edelweiss Large Cap Fund 11.2 32.4 14.6 13.2 11.7 20.92 0.17
Category Average 10.9 31.3 13.4 11.6 11.4 20.64 0.17
NIFTY 100 - TRI 13.3 34.6 13.9 13 12.1 21.93 0.16
Data as of 6 May 2022
Direct Plan and Growth Option considered.
Past performance is not indicative of future returns.
(Source: ACE MF, PersonalFN Research)

There are plenty of reasons for the underperformance of the largecap funds' category.

The primary reason is that the banking and financial services sector has underperformed over the last two years. A majority of largecap funds have allocated a substantial weightage to financial stocks.

Moreover, since they didn't look beyond the frontline IT companies, they missed the IT sector rallies happening beyond the top-4.

Financial services account for 32.41% of the Nifty 100 index while Information Technology forms 14.25% of the index.

Another important reason for the underperformance of the largecap funds' category vis-a-vis Nifty 100-TRI has been the absence of Adani Group companies in their portfolios.

Adani Enterprises, Adani Green Energy, Adani Ports & SEZ, and Adani Transmission are Nifty 100 constituents that have become multi-baggers over the last two years.

And if we start shunning largecap funds because they avoided investing in these companies for their astronomical valuations, then it would be unjust to question them when they behave recklessly and risk investors' hard-earned money.

You see, some large-cap funds have outperformed the category average returns, the Nifty 100-TRI, and rewarded their investors well against the risk taken.

Table 2: Performance of the 3 Best Largecap Funds in the Bull Market Phases

Scheme Name 20-Dec-11 to 03-Mar-15 25-Feb-16 to 14-Jan-20 23-Mar-20 to Till Date
Canara Rob Bluechip Equity Fund 25.2 18.9 40.1
Edelweiss Large Cap Fund 28 16.9 41.3
Mirae Asset Large Cap Fund 32.5 20.4 43.9
Category Average 27.2 16.3 40.6
NIFTY 100 - TRI 26.6 17.3 45.5
Data as of 6 May 2022
Direct Plan and Growth Option considered. Returns up to 1-year are absolute and over-1 year compounded annualized.
Past performance is not indicative of future returns.
(Source: ACE MF, PersonalFN Research)

The performance of largecap funds category across market phases has been a mixed bag too.

Between 2018 and 2020 when only a handful of stocks propped up the index, largecap funds were fairly diversified. Thus they underperformed. However, this paid off during bearish market phases.

Largecap funds such as Nippon India Large Cap Fund and Mirae Asset Large Cap Fund outperformed during bull market phases.

Edelweiss Large Cap Fund, Axis Bluechip Fund, and IDBI India Top 100 Equity Fund did well under falling market conditions.

Table 3: Performance of the 3 Best Largecap Funds in the Bear Market Phases

Scheme Name 05-Nov-10 to 20-Dec-11 03-Mar-15 to 25-Feb-16 14-Jan-20 to 23-Mar-20
Canara Rob Bluechip Equity Fund -13.0 -20.6 -30.5
Edelweiss Large Cap Fund -21.5 -18.4 -34.3
Mirae Asset Large Cap Fund -21.2 -17.4 -37.3
Category Average -23.0 -18.8 -34.8
NIFTY 100 - TRI -26.2 -20.6 -37.9
Data as of 6 May 2022
Returns up to 1-year are absolute and over-1 year compounded annualized.
Past performance is not indicative of future returns.
(Source: ACE MF, PersonalFN Research)

Now let's discuss the 3 best schemes in further detail.

Fund #1: Canara Robeco Bluechip Equity Fund

Launched in August 2010, the primary objective of the Canara Robeco Bluechip Equity Fund is to provide capital appreciation by predominantly investing in companies having a large market capitalisation.

As per the portfolio as of 31 March 2022, Canara Robeco Bluechip Equity Fund held 95.3% of its assets in equity and the remaining 4.7% were cash and cash-equivalent assets.

As of 31 March 2022, its top-10 holdings accounted for 54.8% of the portfolio and Financials (33.2%), IT (17.4%), and Oil & Gas (8.9%) were the top-3 sectors.

Table 4: Top-10 Holdings of Canara Robeco Bluechip Equity Fund

Stocks % of assets
Infosys Ltd. 9.1
ICICI Bank Ltd. 8.3
HDFC Bank Ltd. 8
Reliance Industries Ltd. 8
Tata Consultancy Services Ltd. 4.8
Bajaj Finance Ltd. 4.2
Larsen & Toubro Ltd. 3.4
State Bank Of India 3.1
Bharti Airtel Ltd. 3.1
Axis Bank Ltd. 2.9
Portfolio data as of 31 March 2022
(Source: ACE MF, PersonalFN Research)

Canara Robeco Bluechip Equity Fund has been nimble enough to accommodate changes in broader market valuations, liquidity and earnings.

Of late, it's been adding stocks such as ABB and ITC which are either available at cheaper valuations (compared to its peers) or have been depicting strong earnings performance.

The fund has managed volatility effectively and has generated superior risk-adjusted returns.

Fund #2: Mirae Asset Large Cap Fund

Launched in April 2008, Mirae Asset Large Cap Fund aims to generate long term capital appreciation by predominantly investing in equities of largecap companies.

As of 31 March 2022, the fund held 65 stocks comprising 97.5% of the portfolio, while it parked the remaining 2.5% of its assets in cash and cash equivalents. The weightage of the top 10-stocks was 52.8%. Financials (32.9%), IT (16.1%), and Healthcare (6.9%) were the top-3 sectors.

Table 5: Top-10 Holdings of Mirae Asset Large Cap Fund

Stocks % of assets
Infosys Ltd. 9.7
ICICI Bank Ltd. 8.8
HDFC Bank Ltd. 8.1
Reliance Industries Ltd. 6.7
Axis Bank Ltd. 4.3
State Bank Of India 4.3
Bharti Airtel Ltd. 3.1
Tata Consultancy Services Ltd. 2.9
Sun Pharmaceutical Industries Ltd. 2.4
HCL Technologies Ltd. 2.4
Portfolio data as of 31 March 2022
(Source: ACE MF, PersonalFN Research)

Historically, the fund carried a top-heavy-long-tail portfolio. Even as of 31 March 2022, its bottom-20 holdings accounted for just 6.1%. These strategies have resulted in at par performance with the market during market downcycles but have fetched superior returns under bullish market phases.

Fund #3: Edelweiss Large Cap Fund

Launched in May 2009, Edelweiss Large Cap Fund aims to generate long-term capital appreciation from a portfolio predominantly consisting of equity and equity-related securities of the 100 largest corporate by market capitalisation listed in India.

As per the portfolio as of 31 March 2022, the weightage of equity assets in the fund's portfolio has been 87.3%. It appears that owing to uncertain market conditions and expensive valuations, the fund has preferred to park 12.7% of its assets in cash and cash equivalents.

Table 6: Top-10 Holdings of Edelweiss Large Cap Fund

Stocks % of assets
ICICI Bank Ltd. 7.4
Reliance Industries Ltd. 7.2
Infosys Ltd. 6.2
Bharti Airtel Ltd. 5.1
Axis Bank Ltd. 4.2
Larsen & Toubro Ltd. 4.1
State Bank Of India 4
HDFC Bank Ltd. 3.3
Tata Consultancy Services Ltd. 2.8
ITC Ltd. 2.2
Portfolio data as of 31 March 2022
(Source: ACE MF, PersonalFN Research)

The fund's portfolio comprises 70 stocks with top-10 stocks accounting for 46.5% of its portfolio. Financials (26.8%), IT (15.7%), and Oil & Gas (7.9%) were the top-3 sectors in the fund's portfolio.

The fund follows the GARP (Growth at Reasonable Price) philosophy which makes its portfolio a blend of growth and value stocks.

Just like Mirae Asset Large Cap Fund, Edelweiss Large Cap Fund also holds a top-heavy-long-tail portfolio with bottom-20 stocks accounting for 7.2% of its portfolio as of 31 March 2022.

Outlook for largecap funds

Rising inflation, rising interest rates, and rising input costs are likely to affect the cost of living, cost of capital and corporate profitability respectively.

However, large companies are expected to do well compared to smaller companies and businesses in the unorganised sectors.

Valuations in the largecap universe, especially in the IT sector, aren't as expensive as those in the midcap segment. This means if earnings disappoint largecaps would be less punitive and upgrades may offer an upside.

On a risk-adjusted basis, largecap funds might do well in future. Thus they deserve a place in your core equity portfolio.

Happy Investing!

Disclaimer: This article has been authored by PersonalFN exclusively for Equitymaster.com. PersonalFN is a Mumbai-based Financial Planning and Mutual Fund research firm known for offering unbiased and honest opinions on investing.

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