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Aditya Birla Sun Life Top 100 Fund Is Now A Focused Equity Fund - Outside View by PersonalFN

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Aditya Birla Sun Life Top 100 Fund Is Now A Focused Equity Fund
Jun 12, 2018

Aditya Birla Sun Life Mutual Fund has categorised its large-cap fund, Aditya Birla Sun Life Top 100 Fund, as a Focused Equity Fund. With the change in investment strategy, the scheme name has been changed to Aditya Birla Sun Life Focused Equity Fund. The market-cap bias of the fund will remain towards large-cap stocks.

ABSL Top 100 Fund was launched as a large-cap mutual fund that was focused on the top 100 companies by market capitalisation. Over the past five years, the scheme maintained a portfolio of about 50-70 stocks in its portfolio.

Effective from May 21, 2018, as per its new mandate, the decade old fund will need to restrict its exposure to only 30 stocks. This concentrated portfolio will have a bearing on the overall risk of the fund and the return potential.

Maintaining a concentrated portfolio of stocks has its own pros and cons. While the return potential is higher, so is the risk. Thus, it all boils down to the fund manager's skill and experience.

ABSL Focused Equity Fund continues to be managed by Mr Mahesh Patil, Co-Chief Investment Officer of ABSL Mutual Fund. He has over two decades of experience and has been the fund manager of this large-cap fund since July 2010.

In terms of performance, the erstwhile-diversified equity mutual fund did a reasonable job in rewarding investors over the long term. The portfolio of the fund was predominantly large-cap, with a trace of mid-caps. However, like a few other large cap funds, the scheme has struggled to deliver returns over the past one year.

It needs to be seen if the fund will be able to regain its past glory with its new investment focus.

In this brief analysis, we take a close look at the features and performance of Aditya Birla SL Focused Equity Fund.

For the entire list of scheme names changes, do read: Your Mutual Fund Scheme Renamed. What Should You Do?

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Investment Objective of Aditya Birla SL Focused Equity Fund (erstwhile ABSL Top 100 Fund)

Aditya Birla SL Focused Equity Fund has an investment objective to "achieve long term capital appreciation by investing in upto 30 companies with long term sustainable competitive advantage and growth potential."

The erstwhile fund, Aditya Birla SL Top 100 Fund had an investment objective to "provide medium to long-term capital appreciation, by investing predominantly in a diversified portfolio of equity and equity related securities of top 100 companies as measured by market capitalization"

Aditya Birla SL Focused Equity Fund Details

Fund Facts
Category Focused Fund Style Blend
Type Open ended Market Cap Bias Large-cap
Launch Date 24-Oct-05 SI Return (CAGR) 14.69%
Corpus (Cr) Rs 4,212 Min./Add. Inv. Rs 1,000 / Rs 1,000
Expense Ratio (Dir/Reg) 1.07% / 2.32% Exit Load 1%
Portfolio Data as on April 30, 2018.
SI Return as on May 30, 2018.
(Source: ACE MF)

Under normal circumstances, erstwhile Aditya Birla SL Top 100 Fund allocated...

  • 80% - 100% of its assets in equity & equity related instruments.
    Of which,
    • 65%-100% - towards top 100 market cap companies
    • 0-35% -towards other market cap companies
  • 0% - 20% in Money Market Instruments.

From May 21, 2018, the new scheme Aditya Birla SL Focused Equity Fund allocates -

  • 65% - 100% to equity and equity related securities (max 30 companies)
  • 0-30% to Debt/Money Market Instruments

Growth Of Rs 10,000, If Invested In Aditya Birla SL Focused Equity Fund Plus 5 Years Ago

Had you invested Rs 10,000 in erstwhile ABSL Top 100 Fund five years back on May 30, 2013, it would have grown to Rs 21,817 as on May 30, 2018. This translates in to a compounded annualised growth rate of 16.87%. In comparison, a simultaneous investment of Rs 10,000 in its current benchmark - Nifty 50-TRI index would now be worth Rs 18,433 (a CAGR of 13%). Aditya BSL Top 100 has clearly outperformed its benchmark over the period of last 5 years by a decent margin. Bulk of the outperformance came in 2014-15.

Aditya Birla SL Focused Equity Fund: Year-on-Year Performance

ABSL Focused Equity Fund has a track record of over a decade. The year-on-year performance comparison of the fund vis-a-vis its benchmark - Nifty 50-TRI Index shows that the fund has outperformed the benchmark in 8 out of last 10 calendar years. The marginal underperformance of the fund was recorded in CY2009 and CY2010. The fund's best performance was generated in CY2012 and CY2014. In these years, the diversified fund delivered an excess return of 8 and 15 percentage points respectively over the benchmark. The returns have been subdued in the recent 2-3 years. For the year-to-date, the scheme has lagged the benchmark and delivered a negative return.

Aditya Birla SL Focused Equity Fund: Performance Vis-a-vis Category Peers

Rolling Period Returns
Scheme Name Corpus (Rs Cr) 1 Year (%) 2 Year (%) 3 Year (%) 5 Year (%) Std Dev Sharpe
Axis Focused 25 Fund 3,714 28.00 20.92 15.56 17.97 14.43 0.18
JM Core 11 Fund 35 25.65 24.93 15.39 19.17 18.45 0.13
SBI Focused Equity Fund 2,681 23.92 18.36 14.66 18.67 12.80 0.17
Franklin India High Growth Cos Fund 7,602 19.71 16.51 13.65 23.51 14.68 0.05
Essel Large Cap Equity Fund 154 19.65 16.70 12.72 15.17 13.08 0.10
IDFC Focused Equity Fund 1,561 35.51 22.33 12.61 15.11 14.13 0.12
Reliance Large Cap Fund 9,833 23.35 17.31 12.15 18.38 14.01 0.08
DSPBR Focus Fund 2,961 16.22 14.63 11.95 17.18 13.88 0.05
HDFC Focused 30 Fund 556 21.22 17.60 11.68 16.73 16.33 0.08
Aditya Birla SL Focused Equity Fund 4,212 18.65 16.32 11.59 18.45 12.61 0.08
Invesco India Largecap Fund 142 17.76 14.13 10.98 16.20 11.83 0.08
HSBC Large Cap Equity Fund 699 20.05 17.40 10.39 14.31 13.05 0.09
Principal Focused Multicap Fund 305 18.60 15.71 10.39 15.83 13.31 0.07
Edelweiss Large Cap Fund 134 19.58 14.20 10.26 16.02 13.09 0.06
BNP Paribas Large Cap Fund 932 18.86 12.69 10.19 17.37 13.78 0.03
IDBI India Top 100 Equity Fund 421 15.92 12.78 10.15 16.03 13.06 0.01
DHFL Pramerica Large Cap Fund 400 17.22 13.55 10.11 16.10 12.32 0.05
HDFC Top 100 Fund 15,031 19.86 17.90 9.93 15.88 15.40 0.06
Tata Large Cap Fund 799 16.99 13.65 9.88 14.71 12.53 0.05
L&T India Large Cap Fund 397 16.98 13.02 9.32 15.43 13.08 0.05
Nifty 50 - TRI   19.78 15.33 9.00 14.01 12.71 0.08
Returns are on a rolling basis and those depicted over 1-Yr are compounded annualised.
Data as on May 30, 2018
(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.

On rolling return basis, ABSL Focused Equity Fund has done well in the longer-term periods. As seen in the year-on-year performance charts in the earlier section, bulk of the outperformance in the 3-5 year periods came in the 2014-15 period. Thus, if we excluded this period, the returns are lacklustre, as denoted by the 1-year and 2-year returns. In the 1-year rolling periods, the fund has trailed the benchmark.

Aditya BSL Focused Equity Fund's return comes at lower volatility when compared to its peers in the Focused Fund and Large Cap Fund categories. The risk is also marginally lower than the benchmark. However, this may dully change going ahead, given that the fund will be adopting a concentrated strategy. It needs to be seen, if the fund can deploy effective risk management strategies to keep risk low.

The top five mutual funds with a similar investment objective and market-cap bias in the 3-year rolling period performance include-Axis Focused 25 Fund, JM Core 11 Fund, SBI Focused Equity Fund, Essel Large Cap Equity Fund, and IDFC Focused Equity Fund.

Investment Strategy of Aditya Birla SL Focused Equity Fund

The erstwhile investment strategy focused on large market capitalization stocks and a growth cum value style of investing. The investment emphasis of Aditya Birla SL Focused Equity Fund would now be on investing in a maximum of 30 companies with sound corporate managements and prospects of good future growth. The Fund's focus shall be biased towards large cap companies driven by long-term fundamentals though not limited to it.

Aditya BSL Focused Equity Fund would adopt top-down and bottom-up approach of investing and will aim at being diversified across various industries, sectors, and market capitalization.

Aditya Birla SL Focused Equity Fund - Portfolio Allocation and Market Capitalisation Trends

ABSL Focused Equity Fund usually remains tilted towards large caps, where it allocates over 80% of its portfolio. Mid-and small-caps account for under 10% of the total assets. Over the past year, the scheme has shifted its exposure from mid-and small-caps to large caps. Over the past year, the exposure to large-caps has increased from 80% to nearly 90%. The mid- and small-cap exposure has dropped to 3% from about 8% in the previous year. The exposure to debt and cash equivalents have moved in a narrow range of 5%-10% of the portfolio.

Aditya Birla SL Focused Equity Fund - Top Portfolio Holdings

Top 10 Stocks
Stocks % of Assets
HDFC Bank Ltd. 8.27
ITC Ltd. 5.79
ICICI Bank Ltd. 5.64
Infosys Ltd. 5.63
Maruti Suzuki India Ltd. 4.09
Larsen & Toubro Ltd. 3.44
Dabur India Ltd. 2.98
L&T Finance Holdings Ltd. 2.94
Yes Bank Ltd. 2.92
NTPC Ltd. 2.91
Top 5 Sectors

ABSL Focused Equity Fund usually holds around 50-70 stocks in the portfolio. The portfolio holdings averaged around 65 stocks in the past year (2017). Currently, the number of stocks as per its portfolio disclosed for April 2018, is down to 46 stocks. The number of holdings is expected to go down further to 30 stocks, as the portfolio for May 2018 needs to comply with the new categorisation norms.

The top 10 holdings account for 45% of the entire portfolio. HDFC Bank, ITC, ICICI Bank, Infosys and Maruti Suzuki are the top 5 holdings. The top four stocks command an exposure of 5% each.

The sector allocation of ABSL Focused Equity Fund remains skewed towards banks. While banks account for 19% of the entire portfolio, HDFC Bank contributes 8% to the entire holdings. The remaining part of the portfolio remains reasonably diversified across the top 5 sectors.

Top Gainers in Aditya Birla SL Focused Equity Fund's portfolio

Out of the 46 stocks, about 29 stocks have been held for over a year. This gives a sense that Aditya Birla SL Focused Equity Fund prefers to hold the stock for the long term. Among the top performers in the portfolio, with an average holding above 1%, were Tech Mahindra, Tata Steel and Reliance Industries. These stocks gained 61%, 39%, and 38% respectively over the past year.

There were a few laggards as well. India Oil Corp, Tata Motors, and Bharat Electronics were among the large-caps that declined in value. These stocks fell by 26%, 26%, and 21% respectively.

Suitability of Aditya Birla SL Focused Equity Fund

A number of equity schemes maintain a focused or concentrated stock portfolio. While some have done exceedingly well, others have faltered. A few sour stocks can create a drag on returns. Therefore, while these schemes come with the potential to deliver high returns, the risk involved is even higher.

At the same time, funds that are restrictive in their investment approach or those funds that invest only in a concentrated portfolio can be volatile and may fail to generate adequate returns over the long term.

Hence, a deeper look is required to understand how is the fund likely to perform going ahead. But one thing for sure, with a concentrated portfolio, the fund will not be devoid of volatility. But unlike a few other funds in the focused category, ABSL Focused Equity Fund maintains a large cap bias. Hence, this focus of the fund will help it to provide stability to the returns.

That said, large-cap oriented funds are better poised to handle market volatility vis-a-vis mid-and-small caps. Stable businesses, greater market share, quality of management and the sustainability prospects are factors that seem convincing to take exposure to large-caps at the current level.

Large blue chip companies with strong balance sheets and proven track-records could help ride the wave of short-term volatility to a certain extent. Therefore, diversified equity funds with a predominant large-cap allocation can offer stability to your investment portfolio.

Some large-caps take an opportunistic allocation to mid-caps and offer the perfect mix of stability and growth. Therefore, it is pertinent to review large cap funds even on its ability to limit downside during falling markets. However, this has not been the case with ABSL Focused Equity Fund. Hence, its returns are in line with the benchmark, unlike other schemes that took an opportunistic exposure to mid caps.

As ABSL Focused Equity Fund will now adopt a new strategy, it needs to be seen how it plays out, both in terms of risk and return, over the next 6 months to 1 year.

If you plan to invest in Focused Funds or Large Cap Funds, or both, like in the case of Aditya Birla Sun Life Focused Equity Fund, do ensure that the investments are in line with your financial goals. If you are not sure about how to align these schemes with your tax planning or financial goals, do consult your financial planner or investment advisor.

Note: This write up is for information purpose and not a recommendation to buy or sell the mutual fund scheme. 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.

Editor's Note:

Equity markets are unpredictable and we have already seen the change in sentiment over the last couple of months.

In such conditions, what can be your next best move to ensure decent performance of your mutual funds portfolio?

Some smart investors are taking proactive steps to lock their gains and further strengthen the performance of their mutual funds portfolio.

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This article first appeared on PersonalFN here.

PersonalFN is a Mumbai based personal finance firm offering Financial Planning and Mutual Fund Research services.


The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

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