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Franklin Bluechip: Making a point
Franklin India Bluechip Fund (FIBF) is one the oldest,
largest and most popular equity funds in the country. So much so that
every time it sneezes, investors catch a cold. This should give an idea
of how much of investors’ monies are riding on the fund. Over the last
few years, many questions have been raised about the fund’s lacklustre
performance. In most of these cases it had little to do with the fund’s
performance per se, and more to do with the investment environment.
Launched in December 1993, FIBF is a diversified,
large cap, equity fund. Unlike many of its peers that are predominantly
invested in large caps (i.e. they invest a smaller portion of their
corpus in mid caps), FIBF invests only in large caps. To that end,
whenever large caps rally, FIBF has been a major beneficiary. However,
while a rally in mid caps does nothing for FIBF, it works wonders for
its predominantly large cap peers given their small to moderate mid cap
allocations.
Over 2003-05 mid caps rallied sharply generating
spectacular returns for both mid cap funds and predominantly large cap
funds. FIBF with an out and out large cap focus, could not participate
in the mid cap story and languished lower down in the rankings.
Investors were left feeling that FIBF had all of sudden lost its prowess
and no longer merited inclusion in their portfolios. In our view,
nothing could have been further from the truth. Over its entire tenure,
FIBF had been managed competently by a team led by
K. N. Sivasubramanian, one of the more respected names in the
domestic mutual fund industry. This helped the fund maintain consistency
and continuity in its investment processes and mandate. At a time, when
even a 3-Yr old fund over its tenure is managed successively by a string
of fund managers/chief investment officers (CIOs), the presence of the
same fund manager over FIBF’s 13 years of existence counts for quite a
bit in our view.
Another point to note is that as a policy (dictated
by the fund house), FIBF does not resort to cash to minimise losses
during a market freefall. This is unlike some of its peers that can and
do go as high as 35% in cash/money market instruments/debt to cut losses
in a falling market. Obviously, at the end of the day, these
(opportunistic) funds have a better performance to show for not
necessarily because of their judicious equity investments but because of
their timely debt investments.
Regardless of FIBF’s lukewarm performance over
2003-05, we consistently maintained that being a well-managed fund with
a solid track record, it is a natural option for investors looking at
investing in a large cap fund with an established track record over the
long-term.
Our view was borne out first in 2006 when large caps
rallied (and mid caps fell sharply) marking a turnaround in FIBF’s
performance. We were again redeemed more recently from FIBF’s
encouraging performance in the wake of the sub-prime problem.
In recent times, several other fund houses have
realised the importance of having a ‘true blue’ large cap fund as a part
of their offering. Consequently, we have seen a number of similar new
fund offers (NFOs) over the past year or thereabouts. It will be
interesting to see how these funds fare going forward. In any case, the
same augurs well for FIBF as it will finally offer investors the
opportunity to draw meaningful comparisons; hitherto, FIBF has been
rather unfairly compared with predominantly large cap funds, thereby
depriving investors of the opportunity to correctly evaluate the fund.
It is evident from the graph that over its tenure,
FIBF has made investors very rich compared to its benchmark – the BSE
Sensex. Rs 100 invested in FIBF at inception (December 1993) would have
grown to Rs 3,862 by September 2007. Had the same amount been invested
in the BSE Sensex at that point in time, it would have appreciated to
just Rs 485 over the 13-Yr period.
What should investors do?
Our advice to investors is that they evaluate a
fund’s key traits before making an investment decision. In FIBF’s case,
investors who were aware of its rigid large cap bias expected it to
underperform in a mid cap rally. On the same lines, they knew that since
FIBF does not hold cash, it could get hit hard during volatile markets,
but would also recover just as quickly on the rebound compared to funds
that were in cash. Those who weren’t aware of these traits redeemed
their investments out of sheer ignorance.
But how is the retail investor who has limited
understanding about investments and is busy with his routine chores and
responsibilities supposed to keep track of all the traits and
peculiarities of his various investments (not just in mutual funds, but
also life insurance, fixed income, equities to cite a few avenues)? This
is where an honest and competent financial advisor can really help. With
his research on various investment avenues, the advisor can tell the
investor exactly where he should be investing and for what reasons.
Without him, investors will only end up shooting in the dark.
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