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Fund Analysis : Franklin India High Growth Companies Fund: A Fund for Bull Markets
Fri, Sep 20, 2013
Source : Shoaib Zaman, Citrus Interactive

Franklin India High Growth Companies Fund has been in existence since June 2007, it is an equity diversified fund with assets under management of Rs 455 crore, as on August 31, 2013. The fund is benchmarked against CNX 500.

Performance

The fund’s performance across the time horizon is decent as shown from the table given below. Its performance since inception has been better that its benchmark by over three percentage points.  And in the time horizon of 1 year it has clearly been in the top quartile of its peer-set, and in 3 and 5 years it is in the second quartile of the peer-set.

Scheme Name

YTD

1 Year

3 Years

5 Years

Since Inception

Franklin India High Growth Cos Fund(G)

-10.72

5.67

0.04

8.42

4.35

CNX 500 Index

-11.97

1.11

-2.73

3.66

1.35

Category Average

-13.59

-0.63

-2.32

5.50

Rank

57 / 150

17 / 149

45 / 138

30 / 118

 

Figures are in % as on August 31, 2013; 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’s extraordinary performance comes during the bull-run (2009 and 2012). The fund lags in its performance in a bearish market as is evident from 2008 and 2011, although in 2011 the fund protected the downside.  In this way this fund is very similar to the Reliance Equity Fund, which is another bull market performer. However, in the bullish years (2009 and 2012) Reliance Equity Fund had given returns of 103.41 % and 47.35%. We also need to keep in mind that both the funds have different benchmarks.

Scheme Name

2008

2009

2010

2011

2012

Franklin India High Growth Cos Fund(G)

-58.22

94.26

14.79

-24.97

42.54

CNX 500 Index

-57.36

83.34

14.13

-27.19

31.84

Category Average

-55.88

83.49

19.07

-24.38

34.09

Rank

76 / 113

38 / 126

102 / 134

85 / 141

28 / 146

All figures in %

The fund’s performance during in the last six months has been mixed with clear outperformance in May, June and July. While it underperformed in March, April and August.

Scheme Name

Mar-2013

Apr-2013

May-2013

Jun-2013

Jul-2013

Aug-2013

Franklin India HGCF (G)

-1.74

1.35

1.48

-3.24

-2.87

-4.82

CNX 500 Index

-1.36

3.94

0.86

-3.64

-3.97

-4.09

Category Average

-2.02

3.23

0.41

-3.40

-4.09

-3.44

Rank

68 / 150

137 / 150

35 / 150

81 / 152

51 / 152

131 / 152

All figures in % ; Franklin India HGCF is Franklin India  High Growth Companies Fund

Risk-adjusted returns: In terms of measures of risk such as standard deviation and beta (measured as average of last two years), the fund has lower volatility as against the median of the category. Meanwhile in terms of measures of risk-adjusted return such as Treynor ratio and Sharpe ratio (measured as average of last two years), the fund’s risk-adjusted returns are higher than the media of the category.

Scheme Name

Standard Deviation

Beta

Treynor

Sharpe

Franklin India High Growth Cos Fund(G)

0.88

0.71

0.01

0.015

Category Median

0.95

0.82

-0.01

-0.004

The fund has an expense ratio of 2.61 per cent. This is 8 basis points higher than the median for the diversified-equity category (2.53 per cent). It has an exit load of 1% if investors move before 365 days, this is in line with the general equity diversified funds. 

Processes

The fund investment strategy is a blend of top-down and bottom up approach. The top-down approach focuses on the macro-economy and it is used to identify the fast-growing sectors. And bottom-up approach is used to identify the high-growth companies as per the investment mandate.

The Scheme Information Document sheds light on the some of the metrics used to identify the high-growth companies: "The fund managers will follow an active investment strategy and will be focussing on rapid growth companies (or sectors), which will be selected based on growth measures such as Enterprise Value/EBITDA (Earnings before Interest, Taxes, Depreciation, and Amortization)/growth rate, price/earnings/growth, forward price/sales, and discounted EPS (Earning per Share)."

The light on the decision making process in the construction of the portfolio is revealed in the Statement of Additional Information (SAI). It states: "The Portfolio Manager is the primary decision maker with respect to selection of securities in a portfolio, timing of investment and disinvestments, weightage of individual securities/sectors in the portfolio and asset allocation, within the parameters laid out under the overall supervision of the Chief Investment Officer."

Portfolio

As of July 2013, the fund had exposure to 36 stocks in its portfolio against the category median of 41. Its average portfolio allocation over the last five years has been 44 stocks. In 2012 the fund held between 42-50 stocks, and it reduced the number of holding since the start of 2013. 

In the last five years, the fund has had an average exposure of 60 per cent to large-cap (i.e. stocks with market cap more than Rs 5000 crore). During this period average exposure to mid-cap companies (Mkt cap between Rs 5,000 crore and Rs 500 crore) was at 32 per cent and the exposure to small caps was 2.01 per cent. Meanwhile, its average exposure to cash and cash equivalents (which includes CBLO) during this period has been six per cent.

The top five sectors as per portfolio declared by the fund accounted for 61.44 per cent. These include Banks (17%), Pharmaceuticals (14%), Software (12%), Telecom (12%) and Auto Ancillaries (7%). Cash and cash equivalent account for 9.74 per cent of the portfolio in the month at July end in the form of Call money. Private Banks have found more favour with the fund manager. In the last 12 months (August 2012-July 2013) a total of 22 stocks have appeared in all months, and together they have accounted between 54-to-61 per cent of the portfolio.

Among the stocks it was Bharti Airtel, Infosys, ICICI Bank Amara Raja Batteries, Dr Reddys Laboratories and Mindtree, that were the top five stocks and each one has accounted for more than five per cent of the in the portfolio at the end of July.

Cyclical stocks (i.e. stocks of sectors such as Banks, Auto Ancillaries, Cement, Chemicals, etc.) had exposure levels of 46-to-53 per cent over the last 12 months. Meanwhile exposure to Services (i.e. stocks of sectors such as Telecom - Services, Software, Media & Entertainment, Healthcare, etc.) moved between 16-to-27 per cent; and defensive stocks (i.e. stocks of sectors such as Pharmaceuticals, Consumer Non Durables, etc.) were between 17-to-22 per cent. During the period cash and cash-equivalent accounted for 4.07-9.74.

People

There are two fund managers for this fund KN Sivasubramanian and Roshi Jain.

KN Sivasubramanian is the Chief Investment Officer (Franklin Equity-India) at Franklin Templeton Asset Management (India). He is responsible for overseeing the local equity funds and managing the equity investment team. He manages several other funds such as Franklin India Flexi Cap, Franklin India High Growth Companies and Franklin India Prima. Siva has tremendous experience in Indian equities – running into 20 years. He is one of the most respected equity fund managers in the country and was with Kothari Pioneer Mutual fund before it was acquired by Franklin Templeton. He has been managing this fund since May 2007. 

Roshi Jain is the Vice-President & Portfolio Manager. She is also fund manager for Franklin Asian Equity Fund, FT India Feeder - Franklin US Opportunities Fund & co-fund manager for Franklin Build India Fund and Franklin India Flexi Cap Fund.

View

There are other funds in Franklin Templeton with similar mandates, same benchmarks and freedom to invest across market caps e.g. Franklin India Flexi Cap and Franklin India Prima Plus.

Our observation is that during the bull run of 2009 and 2012, Franklin India High Growth Companies has given returns of 94% and 43% respectively which is far superior to its other multi-cap funds. Therefore, in a bullish market, the fund should perform better.

Scheme Name

2009

2010

2011

2012

Franklin India High Growth Cos Fund(G)

94.26

14.79

-24.97

42.54

Franklin India Flexi Cap Fund(G)

85.15

21.01

-22.25

31.45

Franklin India Prima Plus Fund(G)

69.46

19.48

-16.42

31.04

This fund is ideal for investors who can accept potentially higher-risk for a higher-return. Although its history may be mixed but with approx. 500 crore to manage, and a skilled fund manager at the helm, it has a good chance of outperforming the market with higher margins.
 
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