GEM GAZE
October 2011

The broad-based 2010 sector funds GEMGAZE is almost left untouched save Franklin Pharma, which merged with Franklin India Prima Plus, along with Franklin FMCG Fund. Reliance Pharma has taken its coveted position in the 2011 sector funds GEMGAZE. The negative one-year return of the funds under consideration should be viewed against the backdrop of the bleeding Sensex.

ICICI Prudential Infrastructure Fund Gem
Long-term laurels

ICICI Prudential Infrastructure is the largest fund in the infrastructure category, at Rs. 2462 crores. For a sectoral fund, the fund is well diversified with nearly 52 stocks and 76% of the portfolio is large-cap oriented. However, this diversification is highly skewed in favour of specific scrips. Cash holding on an average was close to 8.4% between February 2008 and July 2011. The fund does take exposure to derivatives. However, much of the exposure is in futures while the use of options is sporadic. The top three sectors, energy, financials, and metals account for 59% of the portfolio. The top three holdings alone account for nearly 22% of the fund’s portfolio and Bharti Airtel is the fund’s top holding with a weightage of 9.04%. The expense ratio is 1.88% and the turnover ratio is 79%. The fund has underperformed diversified funds in one year with a return of –25.4% as against the category average of –27.55%. ICICI Prudential Infrastructure fund is the best performing infrastructure fund despite the lacklustre performance of this sector in the past year. This laggard performance is actually an investment opportunity in disguise for the long-term investor. The infrastructure sector holds potential to generate long term returns for the patient investor as infrastructure projects have long gestation periods. The prospects of this sector are bright as huge investments are made into the infrastructure space by both private investors and government.

Reliance Diversified Power Sector Fund Gem
Promising performer

Reliance Diversified Power Sector Fund has witnessed a steep fall in its AUM from Rs 5,180 crore last year to Rs 2,854 crore now. A large cap-oriented fund with a large cap exposure of 57%, the top three sectors, energy, engineering, and metals constitute 66% of the portfolio. The expense ratio is 1.84% and the portfolio turnover ratio is 16%. Barring Reliance Diversified Power Sector Fund, most power & energy sector funds have eroded wealth for investors. Reliance Diversified Power Sector's performance emphasises the fact that timing is of utmost importance for a theme fund. As the power and infrastructure themes have been prolonged underperformers since the rally that began in March 2009, this thematic fund could not beat the diversified fund category. Though a pessimistic view is prevalent in the power sector in the short term, the long term is promising.

Magnum FMCG Fund Gem
Tiny topper

In the past one year, the Rs 56 crore tiny Magnum FMCG Fund is perched at the top thanks to its focus on mid-sized FMCG companies that have enjoyed a massive re-rating on the bourses. The AUM almost doubled from Rs 30 crore last year. There are 15 stocks in the portfolio and 41% of the assets are in large caps. Owing to its small size, the fund could stay with a compact portfolio of between just 5 to 15 stocks through the year, an advantage given the limited universe of FMCG stocks. The expense ratio is 2.5% and the portfolio turnover ratio is 0.54%. Investors can hold the fund as prospects for FMCG companies in the year ahead remain good, buoyed by pay hikes for the urban salaried class that should help the demand for FMCGs and a good monsoon and higher NREGA payments that should keep rural consumption ticking. However, valuations in the sector are at a stiff premium over markets and investors should not expect an encore of 2010 returns.

Reliance Banking Fund Gem
Beyond benchmark

Reliance Banking Fund invests only in large and midcap financial companies. 63% of the portfolio consists of large caps. The fund is more inclined towards investment in public banks than in the private banks. Reliance Banking Fund has had an average exposure of almost 50% of the portfolio to the public sector banks between March 2007 and March 2011, while the exposure to the private sector banks on an average stands at 26% between March 2007 and March 2011. On an average, the fund has invested around 5.6% into NBFCs between March 2007 and March 2011. The fund has had a cash exposure of 7.2% over the past one year i.e., between March 2010 and March 2011. But over the four-year period (between March 2007 and March 2011), the average cash exposure has been high at 12.7%. There are 18 stocks in the portfolio. Reliance Banking Fund has not only outperformed its benchmark, the CNX Bank Index but has also outperformed other banking sector funds. The current AUM of the fund is Rs 1707 crores and the one-year return is -27.5% as against the category average return of –29.8%. The expense ratio is 1.92% and the portfolio turnover ratio is 36%.

Reliance Pharma Fund Gem
Risky ride

This Rs 603 crore fund typically has a portfolio of 22 stocks and often takes concentrated bets. Like other pharma funds, this fund also took off as a large-cap, but gradually shifted towards mid-cap stocks. Its interest in small-cap stocks has also increased over time. UTI Pharma & Healthcare Fund and SBI Pharma Fund have adopted a more defensive stance by predominantly holding their assets in the large cap domain where they have allocated 60.0% and 61.8% respectively. At present 38% of the assets are in large caps. 8% of the portfolio is in cash. Its one-year return is –2.15% as against the category average of –1.43%. The expense ratio is 2.21% and the portfolio turnover ratio is 41%. Interestingly while clocking enticing returns, none of the pharma funds have indulged in aggressive churning of portfolio. Given its high exposure to the small and mid-cap companies, which increase its beta as well as the risk quotient, Reliance Pharma is risky. But, given its well-diversified portfolio and healthy performance record, those willing to take a plunge in the pharma space can consider this fund.

ICICI Prudential Technology Fund Gem
Old outperformer

One of the oldest funds in this category, this fund returned –14.41% in the past one year as against the category average return of –16.33%. Currently around 91% of the Rs 99.5 crore corpus is invested in the technology sector, with Infosys alone accounting for 43% of the portfolio. The portfolio is highly concentrated with just 14 stocks. But 76% of the portfolio is large cap-oriented. The expense ratio is 2.49% and the portfolio turnover ratio is 41%.