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Franklin India Bluechip Fund- Portfolio Report
Franklin India Bluechip Fund- Portfolio Report
Franklin India Bluechip Fund- Portfolio Report
Franklin India Bluechip Fund- Portfolio Report
Franklin India Bluechip Fund- Portfolio Report
Franklin India Bluechip Fund- Portfolio Report
Franklin India Bluechip Fund- Portfolio Report
Franklin India Bluechip Fund- Portfolio Report
Franklin India Bluechip Fund- Portfolio Report
Franklin India Bluechip Fund- Portfolio Report
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Franklin India Bluechip Fund- Portfolio Report

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Portfolio review coverage on Franklin India Bluechip fund as of Aug-2013.

Portfolio review coverage on Franklin India Bluechip fund as of Aug-2013.

Published in: Economy & Finance, Business
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  • 1. 21 Buddha ...Connecting the dots Franklin India Bluechip Equity Fund- Portfolio Report August 31, 2013 © Saurabh, Shared in investor’s interest 1
  • 2. Table of contents 1 Market Narrative 2 Product Overview 3 Portfolio Snapshot 4 Investment Process 5 Performance Summary 6 Portfolio Analytics 7 Risk Tracker 8 Bottom-line This product is suitable for investors who are seeking : • Long term capital appreciation • A fund that invests in Indian large cap stocks High Risk* (Brown) • • • *Risk indicators are colour coded as: (Blue): Investors understand that the principal will be at low risk. (Yellow): Investors understand that the principal will be at medium risk. (Brown): Investors understand that the principal will be at high risk. © Saurabh, Shared in investor’s interest 2
  • 3. Market Narrative Indian equities witnessed yet another volatile season in the month of August with benchmark indices Sensex & Nifty losing 3.8% & 4.7% respectively on monthly basis. The principal driving factors were depreciating INR and RBI’s reluctance to decrease interest rates. Q1 FY14 GDP growth registered a record low of 4.4%. Even IIP growth went down to 0.6% level. Concerns about slowing Indian economy, huge fiscal & current account deficit, high inflation and muted first quarter results by Corporate India has further dampened mood for the institutional investors. On the global front, Syrian crisis and the fears of liquidity tapering by US Fed escalated problems for investors. FIIs pumped out INR 59 billion from Indian equity markets. All these factors have created a major downward pressure on Indian rupee; it touched its all time low of 68/$ mark in the month. The only reliefs were better than expected monsoons and FDI growth. Better monsoons should help GOI in countering inflation from supply side. Indian Equity Indices Performance Index S&P BSE Sensex India Exhibit 1 Monthly Return YTD Return 1 Year Return 3 Years Return 5 Years Return 10 Years Return (%) (%) (%) (% Ann) (% Ann) (% Ann) -3.75 -4.15 6.83 1.19 5.04 15.93 S&P BSE 200 India -4.53 -10.58 2.07 -1.99 4.00 14.65 S&P BSE 500 India -4.46 -11.97 0.63 -2.90 3.46 14.74 CNX Nifty -4.71 -7.34 4.06 0.43 4.65 14.97 MSCI India Index -3.08 -4.89 7.62 0.30 4.48 15.08 As of 31-Aug-2013 Monthly Sectoral Indices Performance Exhibit 2 IT & Metals bucked the downward trend due to rupee depreciation whereas Capital Goods and Realty turned out to be the worst monthly performers. See Exhibit 2. 13.11 7.63 -9.93 Consumer Durables BANKEX -6.62 FMCG -10.32 -8.44 -7.29 Power -10.88 Realty -1.19 -5.00 -3.47 Source: Bloomberg Metal IT Healthcare Auto Oil & Gas PSU Capital Goods -13.88 © Saurabh, Shared in investor’s interest 3
  • 4. Product Overview Static Info Asset class: Domestic Equities Category: Large Cap Structure: Open ended Manager’s benchmark: S&P BSE Sensex Inception Date: Dec 1, 1993 AUM: INR 46150 million Total Expense Ratio: 2.16% Fund Manager: Anand Radhakrishnan & Anand Vasudevan MORNINGSTAR Style Box ® Equity Style Size Large Mid Small Value Style Blend Growth AUM growth in the last five years 4,00,000 3,50,000 3,00,000 2,50,000 2,00,000 1,50,000 1,00,000 50,000 - Exhibit 3 Q2 08 Q1 09 Q4 09 Q3 10 Q2 11 Q1 12 Q4 12 Franklin India Bluechip fund, an opened ended equity scheme aims to generate superior returns thru’ long term capital appreciation from a diversified pool of large cap stocks. Its benchmark is S&P BSE Sensex but as a truly active fund its holdings goes beyond that 30 stocks investible universe. The fund manager, Anand Radhakrishnan adopts a bottom-up approach to Stock selection and commands the freedom to choose stocks across various sectors, themes and investment style. This fund certainly belongs to the mainstream equity participation products available in the country. It boasts of a rich survival history of twenty years in the market. As the name itself suggests, it has a strong bias for large caps and it also follows a disciplined diversification approach. Fund Manager, Anand Radhakrishnan is well known in the investment circle for his knack for stock picking. He puts rigorous quality constraints for screening his target stocks, often goes beyond the financial performance indicators in the quest for alpha bias. He use a mix of DCF and relative valuation principles in his proprietory valuation models. He capitalizes well on the irrational market behavior and has never shied away from taking contrarian calls against the broader consensus. Over the years it has performed really well against the benchmark. In the peer group rankings it’s been very consistent with its 1st quartile position. On the risk reward front as well, it has delivered impressive results. All these factors have translated into an excellent response by the retail investors. This is captured well in its AUM growth as shown in Exhibit 3. AAUM (in lakh INR) © Saurabh, Shared in investor’s interest 4
  • 5. Portfolio Snapshot Asset Breakdown Exhibit 4 5.34% 0.02% 94.64% Equity Fixed Income Cash & Cash equivalents Sector Breakdown Exhibit 5 Banks Software 17.90% Pharmaceuticals 21.42% Telecom 4.75% As of 31st Aug, 2013, almost 95% of the assets have been invested in equities (as shown in Exhibit 2). Amongst sectors, the portfolio has highest exposure to Banks. Its cyclical nature helps during market recovery periods. The detailed sector breakdown has been shown in Exhibit 5. At a Super sector level, the Fund manager has tried to optimize his diversification strategy into Cyclical ~42% and Sensitive stocks ~40.5%. The top ten holdings list as shown in Exhibit 7 truly reflects his strong bias for out of favour blue chips. Stocks like Infy & Airtel have been facing headwinds in the market since last couple of years. He clearly favors market leaders having excellent management teams, solid corporate governance structure and cash positions. 50% of the assets have been invested in the Top 10 holdings. Petroleum Products 5.07% Power 12.49% 5.74% Cement 5.92% 8.43% 8.46% Characteristics View Auto 9.82% Div Yield P/E P/CF P/B Current Ratio 1.85 12.40 8.23 1.80 1.31 Minerals/Mining Others Portfolio Benchmark Exhibit 6 MCap Breakdown 1.50% Exhibit 7 1.67 15.87 12.05 2.54 1.39 Top Ten holdings Infosys Ltd. 9.63% 8.73% Bharti Airtel Ltd. 7.76% ICICI Bank Ltd. 5.58% Reliance Industries Ltd. 5.35% Dr Reddy's Laboratries… HDFC Bank Ltd. 88.87% Large Medium Grasim Industries Ltd. Small 4.97% 4.89% 3.92% 2.86% IndusInd Bank Ltd. Source: Franklintempletonindia.com Cognizant Technology… 2.86% NTPC Ltd. 2.83% As of 31-Aug-2013 © Saurabh, Shared in investor’s interest 5
  • 6. Investment Process Their Investment Process has been built around the premise that superior risk adjusted returns can be achieved over time by using a team-oriented, collaborative approach and disciplined, bottom-up fundamental research. Exhibit 8 Fundamental analysis Underpriced, out of favour names High quality names Large Caps Universal screening based on marketcap filter Identifies growth stocks with wide economic moats Initial due diligence on valuation and risk Detail company investigation undertaken by sector analysts Portfolio construction, maintenance & oversight on ongoing basis For this fund, Anand Radhakrishnan follows a bottom-up approach to portfolio management. The whole framework has been divided into various stages. Anand and his team decides the coverage universe on the basis of market capitalization. They retain large caps who are also market leaders in their space. They also have a strong bias for brands which have high entry barriers, robust business model, follows industry best practices and high corporate governance standards. As mentioned earlier the manager often goes beyond the benchmark, S&P BSE Sensex for stock picking ideas. The analysts evaluate target companies on the valuation scale using both DCF & relative valuation models. This is one of their most critical building blocks of their portfolio management process as the fund house favours high conviction positions with low portfolio turnovers. The fund manager is always looking to add positions on undervalued scrips. He is also not afraid to take contrarian views on stocks which are facing momentary headwinds but fits nicely in his long term investment criteria. His underweight positions in Auto and FMCG and overweight positions in Telecom & Healthcare as against the peer group affirms those contrarian views . We will cover the impact in the Analytics section. They also have a rigorous on-going oversight process via which they churn out Performance appraisal outcome for their investment strategies. © Saurabh, Shared in investor’s interest 6
  • 7. Performance Summary This fund has had a stellar performance phase till last year. During that period, it not only delivered superior returns over the benchmark but also managed a top quartile ranking in the large-cap peer group. 7000 Wealth Creation over the years Exhibit 9 6000 5557 5000 4482 4000 3000 2000 This reflects the compounding effects of long term out-performance. 1000 0 2003 2004 2005 2006 2007 Fund Anand is known in the industry for his bottom-up approach to stock selection. His careful construction of the portfolio and his strong preference for putting quality filters in his target blue-chip stocks has paid rich dividends. Its well reflected in its relative performance history. It has done remarkably well in all market cycles. (See Exhibit 9 and the adjacent table). However in the last one year, its performance has taken a beating. The fund has trailed Sensex in recent times by huge margins (See adjacent table). This divergent relative performance can be primarily attributed to its high exposure to Banking & Financial Services sector. This has been explained in greater detail in the next section. 2008 2009 2010 2011 2012 Benchmark v/s Benchmark Period Fund Return Benchmark Return Relative 1M -4.62 -3.75 -0.90 3M -10.09 -5.77 -4.58 6M -8.19 -1.28 -7.00 YTD -11.08 -4.15 -7.23 1Y 0.66 6.83 -5.78 3 Y (Ann) 0.74 1.19 -0.45 5 Y (Ann) 8.69 5.04 3.48 10 Y (Ann) 18.71 16.18 2.17 2008 -48.14 -52.45 9.05 2009 84.49 81.03 1.91 2010 22.96 17.43 4.71 2011 -18.25 -24.64 8.49 2012 26.79 25.70 0.87 © Saurabh, Shared in investor’s interest As of 31-Aug-2013 7
  • 8. Portfolio Analytics Asset allocation and stock selection decisions are taken by the fund managers. The portfolio has a diversified focus in the domestic large cap universe, currently it holds about forty stocks which have been well spread across various sectors. 1 Year Performance Attribution Exhibit 10 Utilities 0.17 -1.36 0.02 0.49 Telecom Materials -0.3 -2.72 -1.47 IT -0.27 0.49 0.08 Industrials -0.61 Health Care -2.07 Financials 1.15 -0.11 -1.34 Energy Consumer Staples 0.04 3.25 -1.08 Consumer Discretionary -0.14 Stock Selection -1.86 0.00 Asset Allocation -3.92 3 Years Performance Attribution Exhibit 11 Utilities Telecom Materials 0.75 -2.98 0.87 -1.87 3.74 -5.21 -1.47 -0.33 IT 0.18 0.33 Industrials -0.57 Health Care Financials -0.18 -0.58 Energy Consumer Staples Consumer Discretionary 2.59 4.13 0.68 4.59 -5.43 -0.69 Stock Selection 12.64 1.00 Asset Allocation -13.09 No. of monthly reporting periods: 120 Exhibit 12 On various timescales, the fund has beaten the benchmark. Anand has been phenomenal with his active stock picking skills. When it comes to sectors we have seen him accumulating huge positions in the Banking space over the years. He has been fairly overweight on the leading names from both Private & Public sector banking side. This strategy had been working well until FY12 given slight economic recovery post 2008 and healthy asset quality. Though since last one year the situation has become complex. The markets have witnessed divergent business performance by Private & Public sector banks. Private players like Axis, ICICI & HDFC bank have maintained high asset quality and have reported rising NIM and a falling NPA whereas all PSBs have seen fall in asset quality and their bottom-lines have been consistently eroded due to higher provisioning for bad debts. All this has created a big dent on portfolio’s last one year performance. The fund underperformed Sensex by whopping 5.78% in the last one year. Out of this, 2.18% came from overweighting the Banking sector. The fund has suffered similar blows from Cement & Metals primarily due to lacklustre economic environment. He has derived big contributions from his bullish views on FMCG and Telecom counters in the last one year. See exhibit 10 & 11 for 1 & 3 years Attribution results respectively. However investors shouldn’t focus too much on last year one year results. Source: Bloomberg Winning Period Losing Period In the last ten years, the fund has beaten the benchmark in 54% of all monthly reporting periods while it also outperformed in 70% of all YOY periods. See exhibit 12. © Saurabh, Shared in investor’s interest 8
  • 9. Risk Tracker The portfolio management team lays a strong emphasis on risk management. With an eye on both long term and short term Investment outlook they exercise tactical shuffling of exposures between Cyclical, Sensitive and Defensive sectors. This strategy has worked really well during market downturns. For instance in 2008 & 2011 though it posted negative returns but it managed to beat the benchmark and the category average by huge margins. In 2008 & 2011, it outperformed the benchmark by 9.05% & 8.49% respectively. See exhibit 9. Volatility Comparison Exhibit 13 50 45 40 35 30 25 20 15 10 5 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Portfolio On the volatility parameter, it has shown less dispersion in performance compared to the benchmark. See exhibit 13. Even the monthly performance compiled using last ten years data forms a normal distribution curve. Having got more than 95% exposure in large caps, the fund allays liquidity concerns for the investors. In the peer group, its best positioned on the risk & return scatter chart. See exhibit 15. Its one day *VaR to AUM ratio stands at 2.28% as per Bloomberg data. The fund has done reasonably well on several risk adjusted performance meters as well. See the below table. Benchmark Monthly Return Distribution Exhibit 14 20 18 16 Frequency 14 12 10 8 6 4 2 0 Portfolio Returns Note: *One day VaR has been computed with 99% confidence level using Monte Carlo simulation technique. Risk v/s Return Exhibit 15 3 Years Annualized Returns 1.40 Risk Adjusted Performance 1.20 1.00 0.80 0.60 0.40 0.20 0.00 0 2 4 6 3 Years Standard Deviation Fund Benchmark 8 Std Deviation Mean Sharpe Ratio Information Ratio Treynor Ratio R-Squared Beta Alpha Tracking Error As of 31-Aug-2013 3 Years 16.01 0.16 -0.26 0.36 -6.74 96.93 0.82 0.13 5.03 5 Years 22.8 0.91 0.21 0.74 3.13 97.97 0.82 3.34 6.54 Source: Morningstar Peer group © Saurabh, Shared in investor’s interest 9
  • 10. Bottom line Franklin India Bluechip fund has been in existence since more than twenty years now and holds an impeccable track record in the Domestic Equity funds space. It is one of the flagship products from Franklin Templeton India business. A thorough historical analysis of this fund’s performance, analytics, style and risk reflects two unique fundamental traits: • The fund manager and his team has always been very particular about the product’s investment focus. That’s one of the primary reasons why the portfolio has a strong bias for quality names in the industry and probably that’s also the reason why we don’t see highly leveraged firms in his list. • The fund manager has a high conviction on his proprietory research models. That’s why he keeps a long term horizon with the portfolio holdings. Though sometimes the team also undertakes tactical decisions on asset allocation and stock selection to check volatility in the short run. Contact Us 21 Buddha Investors, Whitefield, Marathahalli, Indiranagar, Brigade road, JP Nagar, Banerghatta road, Hebbal, Sarjapur, BTM layout, Electronic city Still somewhere in Bangalore +91-8374109195 Visit us at http://in.linkedin.com/in/kaash yapsaurabh Under Anand’s stewardship we are fairly upbeat on this fund’s future potential despite its poor run recently. The product has a well diversified focus. It has done a phenomenal job of compounding investor’s wealth with small downside deviation. Even its expense ratio is lower than its category peers. Investors with high risk appetite and a long term investment horizon can consider this fund as a solid alpha generating tool in their core portfolio. Disclaimer & Confidentiality Note - Due diligence has been exercised in checking the authenticity of all figures mentioned in this report. But that does not guarantee its accuracy or completeness. This portfolio review report has been compiled with educational and awareness objective. It does not represent any buy or sell recommendation from our research team. Past performance is not necessarily indicative of future results. Also always bear in mind that mutual fund investments are subject to market risk, read all scheme related documents carefully before investing. 21-Sep-2013 © 21 Buddha 2013 We value your opinions and feedback. Your response will have a significant impact on the content development and presentation improvement in our subsequent reports. Mail to: kaashyap.saurabh@gmail.com © Saurabh, Shared in investor’s interest 10

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