Recommended Portfolios For 2013 Author : Dr. Renu Pothen Our recommended portfolios were launched for the first time on February 26, 2010. Since then our portfolios have undergone changes depending upon the modifications that we have brought about in our recommended funds list. As far as our asset allocation stance goes, we became neutral on India since November 10, 2010. At that time we felt that the Indian market was overvalued on an absolute and relative basis which forced us to change our stance from over- weight on equities to neutral. We continue to maintain this stance although valuations look attractive because we still have concerns on the macro-economic front. The biggest saving grace for India, from our point, is the government’s willingness to take responsibility to bring the economy back onto the growth trajectory. We started seeing this ray of hope since the latter half of 2012 when there was a change of guard at the Finance Ministry. We are of the view that if the government led by a vibrant Chidambaram and his team of economic advisors are able to actually walk the talk then the Indian market will be on a winning streak like last year. ASSET ALLOCATION IN THE PORTFOLIOS Table 1: Current Allocations in the Portfolios Current Portfolio Moderately Moderately Moderately Aggressive Conservative Balanced Aggressive Aggressive Conservative Aggressive (Global) (Global) Bonds 90% 70% 50% 30% 10% 30% 10% Equity 10% 30% 50% 70% 90% 45% 60%Global Equity 0% 0% 0% 0% 0% 25% 30%
Table 2: Portfolio Fund Allocation Changes Target Asset Allocation with effect from 1 Feb 2013 Moderately Moderately Moderately AggressiveAsset Allocation Fund Name Conservative Balanced Aggressive Aggressive Conservative Aggressive (Global) (Global) DEBTUltra Short Term Templeton India Ultra-Short Bond 20 15 10 5 - 5 - Funds Fund Short Term PineBridge India Short Term 40 25 20 5 5 5 5 Funds Fund Canara Robeco Income Fund 15 15 10 - - - - Income Funds Templeton India Income Builder - - - 20 5 20 5 Account Dynamic Bond Birla Sun Life Dynamic Bond 15 15 10 - - - - Funds Fund EQUITY ICICI Prudential Focused 5 10 15 - - - - Bluechip Equity FundLarge Cap funds DSP BlackRock Top 100 Equity - - - 10 15 10 10 Fund Mirae Asset India Opportunities - - - 10 15 5 10 Multicap Funds Fund UTI Opportunities Fund - 10 15 - - - - SBI Magnum Sector FundsMidcap & Small Umbrella-Emerging Businesses - - - 15 20 10 15 cap Funds Fund Dividend Yield Birla Sun Life Dividend Yield Plus 5 10 10 - - - - Funds Contra / Value ICICI Prudentail Discovery Fund - - 10 15 20 10 15 Infrastructure PineBridge Infrastructure & - - - 10 10 5 5 Funds Economic Reform Fund Banking & Reliance Banking Fund - - 10 10 5 5Financial Funds - Franklin Asian Equity Fund - - - - - 10 15 Global Funds JPMorgan JF Greater China - - - - - 15 15 Equity Off-shore Fund CHANGES IN CATEGORY ALLOCATION Fixed Income For our fixed income investors, we have been advising that 2013 is the year to look out for duration funds. Similar to the views floating in the market, we also feel that the central bank will follow a monetary easing path this year but the pace might be slow as there are still some threats to inflation which has been the biggest cause of concern for the Reserve Bank of India (RBI). Hence investors with a time horizon of 12 months to 18 months can consider some of our dynamic bond funds /income funds. We are also of the opinion that there is still some steam left on the shorter end of the curve and investors who want to take an exposure into fixed income funds for a period of 3-6 months should consider our short-term funds. One of the biggest changes that we have made this year in all our portfolios, with the exception of the aggressive portfolio, is to give some allocation to ultra short-term funds. This step has been taken as a sort of liquidity measure and in addition to this we also feel that a cushion like this will enable an investor to use this surplus to increase his equity exposure whenever there are opportunities in the market.
In this context, we would like to inform our investors that Templeton India Ultra-Short BondFund has replaced BNP Paribas Money Plus Fund in our portfolios. We have also made a changein our short-term fund with PineBridge India Short Term Fund replacing Templeton IndiaShort-Term Income Plan in all our 7 portfolios. A relatively small fund which saw its corpusgrow from INR 83 crore in February 2012 to INR 649 crore in December 2012, the fund hasbeen able to put good numbers on the table despite the conservative stance that it adopts.As far as duration funds go, we have not taken any exposure to gilt funds since we believe thatthese funds are a tactical allocation which requires active management. In this scenario,investors who want to take an exposure into gilt funds should do so after having consulted theirfinancial advisors.On the other hand, in the case of income funds, our top pick of last year - ICICI PrudentialIncome Plan, has been replaced with Canara Robeco Income Fund in our conservative,moderately conservative and balanced portfolios while Templeton India Income BuilderAccount finds a place in our moderately aggressive and aggressive portfolios.Finally, Birla Dynamic Bond Fund, which was a part of all our portfolios last year, currently getsan allocation only in the conservative, moderately conservative and balanced portfolios. EquityLarge-cap fundsWe have considered ICICI Prudential Focused Bluechip Equity Fund as the best bet for ourconservative, moderately conservative and balanced investors. We are of the view that a fundwith a concentrated portfolio should be able to maintain the consistency in performance forthose investors who are risk averse. On the other hand, DSP BlackRock Top 100 Equity Fundhas made an entry into our moderately aggressive and aggressive portfolios. The activemanagement being followed in this fund is the reason behind this decision. On the other hand,UTI Dividend Yield Fund, which we have been recommending to our conservative, moderatelyconservative and balanced investors, has been replaced with Birla Sun Life Dividend Yield Plus.This is on account of the review that has happened in our recommended funds for 2013.Multi-cap fundsWe took a stand this year that UTI Opportunities Fund is more suitable for investors falling inthe moderately conservative and balanced categories as it has more than 80% of its assetsconcentrated in large-cap stocks. On the other hand, Mirae Asset India Opportunities Fund hasbeen included in moderately aggressive and aggressive portfolios. The tactical allocation of 10%-15% that the fund manager uses to generate the extra alpha makes it a good bet in theseportfolios.Mid-cap fundsOur investors would be surprised to see our top mid-cap funds like HDFC Mid-capOpportunities and IDFC Sterling Equity Fund not finding a place in our portfolios this year.Although these funds continue to be in our recommended list, we thought of presenting a set ofnew funds in the mid-cap segment. In this case, SBI Magnum Sector Funds Umbrella -Emerging Businesses Fund, the best performing fund on our platform gets an allocation in ourmoderately aggressive and aggressive portfolios.
This fund managed by R Srinivasan takes an aggressive stance in its mid-cap stocks while wefeel that the increased allocations being made into the large caps will definitely help it to tideover any volatility that the fund might face in the coming months.Another addition made this year is ICICI Prudential Discovery Fund, a value fund with a mid-cap tilt. We are of the view that if our investors have the patience to wait for 3 years till thestocks in the portfolio unlock their value then this is the best bet that we can consider in thisspace.Sector fundsAs for our sectoral allocation, we continue to be positive on the banking and infrastructurespace. In the former, our preferred fund remains Reliance Banking Fund. In the case of thelatter, PineBridge Infrastructure & Economic Reform Fund has replaced ICICI InfrastructureFund. Since we already have a pure banking fund in our moderately aggressive and aggressiveportfolios, it would be better to take an exposure into a fund whose entire portfolio allocation isinto infrastructure stocks and this will, in turn, aid diversification that is required in ourportfolios.Global fundsMirae Asset China Advantage Fund has been replaced by JP Morgan JF Greater China EquityOff-shore Fund on account of the changes that have been made in the recommended funds forthis year.CHANGES IN FUNDS INCLUDED IN THE PORTFOLIOSTable 3: New fund additions and old fund deletions Changes in scheme Category Old NewUltra Short Term Fund BNP Paribas Money Plus Fund Templeton India Ultra-Short Bond Fund Short Term Funds Templeton India Short-Term Income Plan PineBridge India Short Term Fund Income Funds ICICI Prudentail Income Plan Canara Robeco Income Fund Templeton India Income Builder Account Gilt Funds ICICI Prudential Gilt Fund Investment Plan - Large cap Funds Franklin India Bluechip Fund DSPBR Top 100 Equity Fund Multi cap Funds L&T Equity Fund Mirae Asset India Opportunities Fund SBI Magnum Sector Funds Umbrella-EmergingMid & Small cap Funds IDFC Sterling Equity Fund Businesses Fund HDFC Mid-Cap Opportunities Fund - Contra / Value Funds - ICICI Prudential Discovery Fund Dividend Yield Funds UTI Dividend Yield Fund Birla Sun Life Dividend Yield Plus PineBridge Infrastructure & Economic Reform Infrastructure Funds ICICI Prudential Infrastructure Fund Fund JPMorgan JF Greater China Equity Off-shore Global Funds Mirae Asset China Advantage Fund Fund
CONCLUSIONOur portfolios were revamped on February 1, 2013 and our factsheets from next month will takeinto consideration these changes.Please feel free to get back to us on firstname.lastname@example.org if you require anyclarifications in our model portfolios.Dr. Renu Pothen is Research Head with iFAST Financial India Pvt Ltd.DISCLAIMERiFAST and/or its content and research team’s licensed representatives may own or have positions in the mutual funds of any of theAsset Management Company mentioned or referred to in the article, and may from time to time add or dispose of, or be materiallyinterested in any such. Any advice herein is made on a general basis and does not take into account the specific investmentobjectives of the specific person or group of persons. Past performance and any forecast is not necessarily indicative of the future orlikely performance of the mutual fund. The value of mutual funds and the income from them may fall as well as rise. Opinionsexpressed herein are subject to change without notice.