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Franklin India High Growth Cos: Good stock selection led to good performance
Thu, Oct 29, 2015
Source : Khyati Shah, Citrus Interactive

Franklin India High Growth Companies Fund is a multi-cap equity diversified fund. The objective of the scheme is to achieve capital appreciation through investments in Indian companies/sectors with high growth rates or potential. The fund was launched in July 2007 and is benchmarked against CNX 500 Index. The fund has an AUM of Rs. 3,582 crore as on September 30, 2015 which has gone up by 235 crore as compared to the month of August 31, 2015 (3,347 crore).

Performance

The fund’s performance across different time horizons is extremely good as seen in the table given below. Its performance since inception has done better that its benchmark by over seven percentage points in CAGR terms. In the time horizon of 3 and 5 years it has clearly been in the top quartile of its peer-set, and in 1 year it is in the second quartile of the peer-set. The outperformance margin vis-à-vis its benchmark as well as equity diversified category is substantially high. 

 

YTD

6 Months

1 Year

3 Years

5 Years

Since Inception

Franklin India High Growth Cos Fund

0.62

-3.54

15.73

29.07

15.32

13.73

CNX 500 Index

-1.88

-4.65

3.59

13.82

6.17

6.9

Category Average

1.78

-2.14

10.82

20.27

10.66

NA

Rank

92/157

106/160

42/156

21/145

22/137

NA

  Figures are in % as on Sept 30, 2015; Returns above 1-year in   Compounded Annual Growth Rate (CAGR)

When we look at the calendar year returns it’s quite clear that this fund has beaten its benchmark in each of the last calendar five years. It has beaten the category average in 2012, 2013 and 2014 – it showed underperformance vis-à-vis the category average in 2010 and 2011.

 

2010

2011

2012

2013

2014

Franklin India High Growth Cos Fund

14.79

-24.97

42.54

9.22

79.58

CNX 500 Index

14.13

-27.19

31.84

3.61

37.82

Category Average

19.65

-23.26

33.98

5.41

53.82

Rank

103/131

86/138

26/142

26/146

18/149

  All figures in %

 

Portfolio Characteristics

Risk: In terms of measures of risk such as standard deviation and beta (measured over last three years), the fund has taken lower risk compared to the category median.

 

Standard Deviation

Beta

Franklin India High Growth Cos Fund

0.87

0.78

Category Median

0.95

0.88

 

Risk-adjusted Returns. In terms of measures of risk such as Treynor ratio and Sharpe ratio (measured over last three years) the fund has taken higher risk compared to the category median.

 

Treynor

Sharpe

Franklin India High Growth Cos Fund

0.19

0.11

Category Median

0.07

0.07

 

Sector concentration. The fund’s concentration in the top three, five and ten sectors is higher than the median for the diversified-equity category.

 

Top 3

Top 5

Top 10

Franklin India High Growth Cos Fund

38.52

53.87

79.97

Median - Equity Diversified

37.35

50.17

71.33

 

Company concentration. The fund’s concentration is lower than the median for the diversified-equity category in the top three, five and ten companies.

 

Top 3

Top 5

Top 10

Franklin India High Growth Cos Fund

19.3

27.86

44.67

Median - Equity Diversified

22.22

34.35

59.68

 

Processes

The objective as per the offer document is to invest in companies having ‘above average’ potential for growth. The fund has a mandate of having a minimum of 70% investment in equity and equity linked instruments. The investment strategy is a mix of top-down and bottom-up.

The fund manager is the primary decision maker in matters related to the selection of securities, timing, weightage of individual securities and asset allocation within the parameters laid out by the Chief Investment Officer. The Investment committee which is an informal group comprising of International CIO, CIO, Head – Risk Management and Portfolio Managers interacts regularly for a review of performance.

The fund managers are following an active investment strategy taking defensive/aggressive postures depending on opportunities available at various points in time.

Number of equity holdings:  As of September 30, 2015, the fund holds 30 stocks which are lower than the category median of 46 stocks in the diversified equity segment.

The top 5 sectors in the portfolio had an allocation of 53.87% which is higher than the category average of 49.61%. The fund’s exposure to cyclical stocks currently is 65.43% followed by services with 14.17% & defensives with 3.73%. The Top five holding HDFC Bank Ltd., ICICI Bank Ltd., State Bank of India, Axis Bank and Maruti Suzuki India Ltd. In the month of September no new stocks are brought in but Bajaj Auto Ltd. stock has been dropped from the portfolio.

The fund has an expense ratio of 2.27 per cent. This is 9 basis points higher than the median for the diversified-equity category (2.36 per cent). It has an exit load of 1% if investors move before 2 years; this is on higher side as compared to the general equity diversified funds.

 

Fund Manager

There are two fund managers for this fund R Janakiraman and Roshi Jain.

Mr. R. Janakiraman has over 15 years of experience in research field and is responsible for providing Equity research Support. He is a B.E and PGDM (Business Management). He manages several other funds such as Franklin India Flexi Cap, Franklin India Prima Plus Fund, Franklin India Smaller Companies Fund, Franklin India High Growth Companies Fund, & Franklin India Opportunities Fund. These funds have a good track record which speaks positively about the fund manager’s skills. Prior to joining Franklin Templeton, he has also worked with Indian Syntans Invt Pvt. Ltd., Citicorp Information Tech Ltd., and UTI Securities Exchange Ltd.

Ms. Roshi Jain is the Vice-President & Portfolio Manager. Ms. Jain is a CFA, ACA and PGDM from IIM-Ahmedabad. Ms. Jain has been a research analyst at Franklin Templeton responsible for providing research support on the Indian capital goods and infrastructure sectors for 9 years. Ms. Jain has been in the investment Industry for the past 12 years. Prior to joining Franklin Templeton, she worked as a Financial Analyst at Goldman Sachs, London. She is also fund manager for Franklin Asian Equity Fund, Franklin Build India Fund, FT India Feeder - Franklin US Opportunities Fund, Franklin India Flexi Cap Fund, Franklin India Prima Fund & Franklin India Smaller Companies Fund.

 

View

The fund has a very good track record and has shown a successful stock selection strategy. It may show some volatility in shorter time horizons because of high sector concentration but may do well over longer periods. It can be considered by investors looking for a flexi cap approach to long term investments.

 
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