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Fund Analysis: Franklin India Prima Plus: Strong at defence
Fri, Nov 16, 2012
Source : Sanjay Kumar Singh, Citrus Interactive

Franklin India Prima Plus is a large-cap growth fund that was started in September 1994. Currently the fund has Rs. 1,834.08 crore under management. It is benchmarked against the S&P CNX 500 Index.

Fund performance

Scheme Name

1-yr

YTD

3-yr

5-yr

10-yr

Since inception

Franklin India Prima Plus Fund(G)

8.02

22.07

10.55

3.38

27.17

19.06

S&P CNX 500

5.53

23.66

4.90

-1.53

20.43

 

All figures in %; as on October 31, 2012

Year-to-date (October 31, 2012) the fund is up 22.07 per cent. At present it is lagging a little behind its benchmark which is up 23.66 per cent so far this year. The fund has beaten its benchmark over the one-, three-, five-, and 10-year horizons. Since its inception 18 years ago, the fund has given its investors a compounded annual return of 19.06 per cent.

Scheme

2011

2010

2009

2008

2007

Franklin India Prima Plus Fund
(G)*

-17.13

19.48

69.46

-47.66

54.90 

S&P CNX 500*

-27.57

14.13

83.34

-57.36

62.51

Out/under-performance**

10.45

5.35

-13.88

9.71

-7.61

*in %; in %age pts.

Next, let us turn to the fund's calendar year wise performance to see if it has been consistent. The fund has beaten its benchmark index in three of the last five calendar years. It failed to beat its benchmark in 2007 and in 2009, both of which were years in which the markets were rising steeply.

The fund has provided sound downside protection to its investors. Both in 2011 and 2008, years when the markets were declining, the fund managed to decline less than its benchmark index. In fact, its margin of out-performance vis-a-vis its benchmark has tended to be high in declining markets.

What the fund's calendar year wise performance reveals is that while the fund may not win big time in rising markets, it provides good protection to its investors in declining markets.

Portfolio characteristics

Number of equity holdings. Currently the fund has 55 stocks in its portfolio. Thus, its equity count is much higher than the median for the diversified-equity category of funds, which currently stands at 41.

Even historically, the fund has tended to have a high stock count. Its average equity count over the last five years stands at 54.93.

Sector concentration. The fund’s concentration in the top three and five sectors is higher than the median for the diversified-equity portfolio. Its concentration in the top 10 sectors is lower than the median for the diversified-equity category.

 

Top 3

 

Top 5

 

Top 10

 

Franklin India Prima Plus Fund(G)

39.92

50.01

68.62

Median-diversified equity category

34.29

48.02

69.49

Company concentration. The fund’s concentration in the top three, five, and 10 stocks in its portfolio is lower than the median further diversified equity category.

 

Top 3

 

Top 5

 

Top 10

 

Franklin India Prima Plus Fund(G)

17.63

27.14

41.24

Median-diversified equity category

18.67

28.42

45.22

Thus, what we have here is a mixed picture. An examination of the number of equity holdings and company concentration shows that the fund runs a relatively diversified portfolio. But the fund manager tends to concentrate his top picks in a limited number of sectors. Overall the concentration level hovers around the median for the diversified-equity category.

Turnover ratio. According to its latest portfolio disclosure, the fund has a turnover ratio of 53.51 per cent. This is much lower than the median turnover level of 70 per cent for the diversified-equity category.

Historically, the fund has had a higher turnover ratio than currently: its average over the last five years has been 96.30 per cent.

The turnover ratio appears to have come down in recent times. Since November 2010, the fund's turnover ratio has never gone into triple-digit territory. This, according to us, is a positive development. If a fund manager is able to fetch good returns with low turnover of his portfolio, that is a positive since he loses less on transaction costs (costs incurred on buying and selling of stocks).

Expense ratio. The fund has an expense ratio of 1.91 per cent, which is much lower than the median of 2.34 per cent for the diversified-equity category. A low expense ratio is a positive for investors.

Cash allocation. The fund avoids high cash calls. Its cash allocation has averaged 5.14 per cent over the last five years. This we believe is a positive. Funds that take high cash calls stand in danger of missing out on sudden upmoves in the market.

Risk. If we examine measures of risk such a standard deviation and beta (calculated over the preceding three years ending October 2012), we find that the fund's level of risk is lower than the median for the diversified-equity category.

 

Standard deviation

Beta

Franklin India Prima Plus Fund(G)

0.9389

0.7758

Median-diversified equity category

0.9930

0.8043

Risk-adjusted returns. An examination of parameters such as Treynor ratio and Sharpe ratio (also calculated over a three-year period) shows that the fund's risk-adjusted return is higher than the median for the diversified-equity category.

 

Treynor

Sharpe

Franklin India Prima Plus Fund(G)

0.0470

0.0389

Median-diversified equity category

0.0321

0.0262

Portfolio strategy

2011. In 2011 the markets declined: the Sensex fell -24.83 per cent, the BSE Mid-cap Index fell -34.78 per cent, and the BSE Small-cap Index fell -43.63 per cent. The fund declined -17.13 per cent, which was a good 10.45 percentage points less than the decline of its index (-27.57 per cent).

In 2011, the fund’s allocation to large-cap stocks ranged from a minimum of 72.86 per cent in June to a maximum of 82.67 per cent in November 2011. The average allocation to large-cap stocks in 2011 was 77.62 per cent.

Allocation to mid-cap stocks averaged 11.82 per cent in 2011. Small-cap stocks accounted for a minuscule 4.21 per cent of the portfolio on an average, and 'others', for 6.36 per cent.

In February 2011 the fund had an allocation of only 2.39 per cent to cash. But as the markets fell cash allocation rose to a maximum of 10.12 per cent by October. The average allocation to cash stood at 6.20 per cent during the year.

In 2011 only the BSE FMCG Index turned in a positive performance (9.27 per cent). All the other sectors turned in negative returns: BSE Healthcare (-13.20 per cent), BSE IT (-15.62 per cent), BSE Teck (-16.52 per cent), BSE Consumer Durables (-18.13 per cent) and BSE Auto (-20.30 per cent).

Sector

Jan 2011 (%)

Dec 2011 (%)

Increased/decreased
exposure (%age pts.)

IT - Software

8.03

13.95

5.92

Pharmaceuticals & Drugs

2.77

7.63

4.86

Automobile Two & Three Wheelers

 

3.69

3.69

Mining & Minerals

2.66

3.45

0.79

Power Generation/Distribution

3.38

3.18

-0.20

Bank – Private

14.85

14.65

-0.20

Refineries

5.05

4.57

-0.48

Telecommunication - Service  Provider

10.46

9.98

-0.48

Auto Ancillary

3.96

3.35

-0.61

Diversified

4.92

4.21

-0.70

During 2011 the fund raised its allocation to IT software, pharma, and automobiles (two and three wheelers) quite decisively. It raised its allocation to the mining and minerals sector marginally.

Among its top 10 sector holdings, the fund reduced its exposure to the diversified sector, auto ancillary, telecom service providers, and so on (see table above).

Sector

Fund (%)

CNX500 (%)

Over/under weight (%age pts.)

Telecommunication - Service  Provider

9.98

1.86

8.12

IT - Software

13.95

9.74

4.21

Diversified

4.21

1.25

2.96

Auto Ancillary

3.35

1.03

2.32

Pharmaceuticals & Drugs

7.63

5.47

2.16

Automobile Two & Three Wheelers

3.69

1.63

2.06

Mining & Minerals

3.45

1.51

1.94

Bank – Private

14.65

13.21

1.44

Power Generation/Distribution

3.18

3.50

-0.32

Refineries

4.57

6.20

-1.63

Dec 2011 figures

By the end of the year, the fund was overweight vis-a-vis its index on telecom service providers, IT software, diversified, auto ancillary, Pharma, auto ancillary, mining and minerals and private banks. It was underweight vis-a-vis its index on refineries and power generation and distribution.

Next, let us turn to the fund’s stock allocation.

Company

Jan 2011 (%)

Dec 2011 (%)

Increased/decreased
exposure (%age pts.)

Infosys Ltd.

5.45

8.98

3.52

HDFC Bank Ltd.

2.03

4.13

2.11

Power Grid Corpn. Of India Ltd.

1.03

2.32

1.29

Dr Reddy’s Laboratories Ltd.

1.56

2.59

1.03

Reliance Industries Ltd.

2.71

3.69

0.98

Idea Cellular Ltd.

2.84

2.69

-0.16

Bharti Airtel Ltd.

7.62

7.29

-0.33

Grasim Industries Ltd.

4.92

4.21

-0.70

ICICI Bank Ltd.

6.25

5.10

-1.15

Kotak Mahindra Bank Ltd.

4.28

3.03

-1.26

In 2011, the fund raised its exposure to stocks like Infosys, HDFC Bank, Power Grid Corporation, Dr Reddy's Lab, and Reliance Industries. Among its top 10 holdings, the fund reduced its exposure to stocks like Kotak Mahindra Bank, ICICI Bank, Grasim Industries, Bharti Airtel, and Idea Cellular.

Company

%Holding  Dec-2011

CNX500  Dec-2011

Over/under weight
vis-à-vis index (%age pts.)

Bharti Airtel Ltd.

7.29

1.27

6.02

Infosys Ltd.

8.98

4.69

4.29

Grasim Industries Ltd.

4.21

0.82

3.39

Idea Cellular Ltd.

2.69

0.26

2.43

Kotak Mahindra Bank Ltd.

3.03

0.92

2.11

Dr Reddy’s Laboratories Ltd.

2.59

0.84

1.75

Power Grid Corpn. Of India Ltd.

2.32

0.66

1.66

ICICI Bank Ltd.

5.10

4.75

0.35

HDFC Bank Ltd.

4.13

4.41

-0.28

Reliance Industries Ltd.

3.69

5.30

-1.61

By the end of the year, the fund was decisively overweight on stocks like Bharti Airtel, Infosys, Grasim Industries, Idea Cellular, Kotak Mahindra Bank, Dr Reddy's Lab, Power Grid Corporation, and ICICI Bank. Among its top holdings, the fund was underweight vis-a-vis its index on stocks like Reliance Industries and HDFC Bank.

2012. Year-to-date (October 31, 2012) the Sensex is up 21.06 per cent, the BSE Mid-cap Index is up 29.49 per cent, and the BSE Small-cap Index is up 28.454 per cent. Year-to-date the fund is up 22.07 per cent, lagging slightly behind its index, which is up 23.66 per cent.

This year the fund has had an average allocation of 81.83 per cent to large-cap stocks, 9.32 per cent to mid-cap stocks, a miniscule 3.49 per cent to small-cap stocks, and 5.36 per cent to the 'others' category.

Allocation to cash has averaged 5.25 per cent till October this year.

Year-to-date (October 31, 2012) the high-performing sector indexes have been BSE Bankex (41.45 per cent), FMCG (40.94 per cent), Capital Goods (34.66 per cent), Consumer Durables (31.29 per cent), Healthcare (29.81 per cent), Realty (28.78 per cent), and Auto (26.57 per cent).

Sector

Jan 2012 (%)

Oct 2012 (%)

Raised/lowered allocation (%age pts.)

Pharmaceuticals & Drugs

6.50

11.88

5.38

Bank - Private

15.92

20.76

4.84

TV Broadcasting & Software Production

1.30

3.13

1.83

Auto Ancillary

3.29

4.03

0.75

Mining & Minerals

3.53

4.25

0.72

Diversified

4.03

4.46

0.43

Ratings

2.61

2.96

0.35

Refineries

4.91

4.23

-0.67

IT - Software

10.84

7.28

-3.55

Telecommunication - Service  Provider

9.79

5.63

-4.16

This year the fund has increased its exposure to sectors like pharma, private banks and TV broadcasting quite decisively. It has marginally raised its exposure to auto ancillary, mining and minerals, diversified and ratings.

This year it has lowered its exposure quite decisively to telecom service providers and IT software and marginally to refineries.

Sector

Fund (%)

S&P CNX 500  (%)

Over/under weight
vis-à-vis index (%age pts.)

Bank - Private

20.76

13.55

7.21

Pharmaceuticals & Drugs

11.88

5.55

6.33

Telecommunication - Service  Provider

5.63

1.90

3.73

Diversified

4.46

1.30

3.16

Auto Ancillary

4.03

1.00

3.03

Ratings

2.96

0.15

2.81

Mining & Minerals

4.25

1.48

2.77

TV Broadcasting & Software Production

3.13

0.73

2.40

Refineries

4.23

5.97

-1.74

IT - Software

7.28

9.56

-2.28

As in Oct-2012

By the end of October 2012, the fund was overweight vis-a-vis its index on private banks, pharma, telecom service providers, diversified, auto ancillary, ratings, mining and minerals and TV broadcasting.

Among its top 10 sector holdings, the fund is underweight on IT software and refineries.

Company

Jan 2012 (%)

Oct 2012 (%)

Raised/lowered allocation (%age pts.)

TV18 Broadcast Ltd.

1.30

3.13

1.83

ICICI Bank Ltd.

5.75

6.76

1.01

HDFC Bank Ltd.

4.36

5.24

0.87

Ipca Laboratories Ltd.

1.58

2.35

0.77

Dr Reddys Laboratories Ltd.

2.55

3.10

0.56

Grasim Industries Ltd.

4.03

4.46

0.43

IndusInd Bank Ltd.

2.31

2.68

0.37

Reliance Industries Ltd.

3.99

2.85

-1.15

Bharti Airtel Ltd.

7.25

5.63

-1.61

Infosys Ltd.

8.18

5.05

-3.13

This year the fund has raised its exposure to stocks such as TV 18 Broadcasting and ICICI Bank, and more marginally to HDFC Bank, Ipca Lab, Dr Reddy's Lab, Grasim Industries and IndusInd Bank.
Some of the stocks to which it has reduced its exposure decisively include Infosys, Bharti Airtel, and Reliance Industries.

Company

Fund (%)

S&P CNX 500 (%)

Over/under weight
vis-à-vis index (%age pts.)

Bharti Airtel Ltd.

5.63

1.29

4.34

Grasim Industries Ltd.

4.46

0.83

3.63

TV18 Broadcast Ltd.

3.13

0.08

3.05

Ipca Laboratories Ltd.

2.35

0.11

2.24

Dr Reddys Laboratories Ltd.

3.10

0.87

2.23

IndusInd Bank Ltd.

2.68

0.50

2.18

ICICI Bank Ltd.

6.76

4.77

1.99

HDFC Bank Ltd.

5.24

4.53

0.71

Infosys Ltd.

5.05

4.42

0.63

Reliance Industries Ltd.

2.85

5.08

-2.23

As in Oct 2012

By the end of October 2012, the fund was quite decisively overweight on stocks like Bharti Airtel, Grasim Industries, TV 18 Broadcast, Ipca Laboratories, Dr Reddy’s Lab, IndusInd Bank, and so on (see table above). Among its top 10 holdings, the only stock on which the fund was underweight vis-a-vis its index was Reliance Industries.

Fund manager

This fund is managed by Anand Radhakrishnan who has been in charge of it since April 2007. He is assisted by R. Janakiraman who has been working on this fund since February 2011.

Radhakrishnan is among the finest equity fund managers in the industry today. He manages several other funds of which Franklin India Bluechip Fund(G) (excellent track record) and Franklin India Taxshield (good track record) deserve mention.

Conclusion

What we have here is a large-cap growth fund with a fine long-term track record. The fund is strong at defence as is evident from the fact that it protects its investors well in falling markets. But it may lag behind in markets that are rising vertically. Those looking for a stable (low on volatility) performer in their core portfolio may buy this fund.  

 
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