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IDFC Sterling Equity: Good midcap bet
Fri, Feb 09, 2018
Source : Yash Jashnani, Citrus Interactive

IDFC Sterling Equity Fund is an open ended mid cap equity diversified fund. The investment objective of the scheme is to seek to generate capital appreciation from a diversified portfolio of equity and equity related instruments. The Scheme will predominantly invest in small and midcap equity and equity related instruments. The fund has an AUM of Rs. 2,442 crore as on January 2018 which has increased by Rs. 1,212 crore compared to January 2017.

Performance 

The fund’s performance across various time horizons is extremely good as seen in the table given below. It has outperformed its benchmark in all the time periods except the 3-year period. It has also outperformed the category average in all time periods except for the Year-to-date (YTD) period. In the YTD period, the midcap category and the midcap index have underperformed. There is also variation in the fund performance as a new fund manager took over in April 2016.

Scheme Name

YTD

6 Months

1 Year

3 Years

5 Years

Since Inception

IDFC Sterling Equity Fund

-0.84

13.8

47.4

16.16

21.79

19.37

Nifty Free Float Midcap 100

-1.65

12.26

34.85

16.53

19.96

8.4

Category Average

-0.05

9.44

30.07

12.26

19.15

NA

Rank

104/162

11/159

6/155

27/149

39/138

NA

Figures are in % as on 31st January 2018; Returns above 1 year in Compounded Annual Growth Rate (CAGR)

In terms of the calendar year returns the fund has outperformed its benchmark in 2013, 2014 and 2017 time periods but has underperformed in 2015 and 2016. It has outperformed its category average in 2014 and 2017 but has underperformed in 2013, 2015 and 2016.

Scheme Name

2013

2014

2015

2016

2017

IDFC Sterling Equity Fund

4.92

57.32

-0.25

1.05

61.34

Nifty Free Float Midcap 100

-5.1

55.91

6.46

7.13

47.26

Category Average

5.12

54.6

3.57

4.71

37.78

Rank

76/133

47/138

107/144

121/148

4/148

Risk: In terms of measures of risk such as standard deviation (measured over the last 3 years) the fund has taken higher risk compared to its category median and in terms of Beta (measured over the last 3 years) the fund has taken lower risk as compared to its category median.

 

Standard Deviation

Beta

IDFC Sterling Equity Fund

0.96

0.9

Category Median

0.86

0.93

Risk-Adjusted Return: In terms of Sharpe (measured over the last 3 years) the fund has provided low risk-adjusted returns compared to the category median and Treynor Ratio (measured over the last 3 years) the fund has proved equal risk-adjusted returns compared to the category median.

 

Treynor

Sharpe

IDFC Sterling Equity Fund

0.05

0.06

Category Median

0.04

0.05

Portfolio

Sector concentration: The fund’s concentration in the top 3, 5 and 10 sectors is higher than the category median.

 

Top 3

Top 5

Top 10

IDFC Sterling Equity Fund

19.78

30.28

49.37

Category Median

30.64

41.82

61

 All figures in %

Company concentration: The fund’s concentration in the top 3, 5 and 10 companies is lower than the category median.

 

Top 3

Top 5

Top 10

IDFC Sterling Equity Fund

11.34

17.31

28.45

Category Median

15.73

23.39

38.24

All figures in %

Sector and Company Concentration signifies that the funds maintain a fairly diversified portfolio.

Number of Equity Holdings: The fund currently holds 81 stocks in its portfolio (as on end-December, 2017), which is higher than the median stock count of the equity diversified category, which currently stands at 44. In the last 5 years the equity holding averages to 45.

Cash Equivalent:        

Its cash equivalent for December 2017 is 5.4%. The average cash allocation for the last five years is 5.23%. Its maximum allocation to cash over the last two years is 12% in February 2016 and lowest was -0.05% in March 2016.

Portfolio Characteristics:

The top 5 sectors include Retailing, Bank – Private, Cement & Construction Materials, Finance – NBFC and Engineering – Construction.

In the last 6 months the fund has bought Apollo Tyres Ltd., Ceat Ltd., EIH Ltd., Future Supply Chain Solutions Ltd., Graphite India Ltd., ICICI Lombard General Insurance Co Ltd, JK Cement Ltd., Jyothy Laboratories Ltd., Kalpataru Power Transmission Ltd., Kirloskar Ferrous Industries Ltd., KPIT Technologies Ltd., Maharashtra Seamless Ltd., Mahindra CIE Automotive Ltd., MAS Financial Services Ltd., Natco Pharma Ltd., Nitin Spinners Ltd., Future Lifestyle Fashions Ltd., Praxis Home Retail Ltd., Raymond Ltd., Schaeffler India Ltd. and Sterling Tools Ltd.

Stocks of Castrol India Ltd., Equitas Holdings Ltd., Gujarat Alkalies & Chemicals Ltd., Gujarat State Fertilizers & Chemicals Ltd., HPL Electric & Power Ltd., Oil India Ltd., Tech Mahindra Ltd. and The Lakshmi Vilas Bank Ltd. have been dropped from its portfolio. Shares of Capital First Ltd., Future Consumer Ltd. and PNB Housing Finance Ltd. have been bought and sold.

 

Process

IDFC Sterling Equity Fund is a midcap fund that focuses on active stock selection strategy.  The focus of the fund has been on building a portfolio of challengers and emerging businesses with an emphasis on bottom up stock selection. As a part of the current strategy, half of the portfolio looks to build on the mid and small cap base – these are the market leaders in the non-nifty sectors (i.e. Tyres, Bearings etc.) or top challengers in nifty (such as FMCG, Banks). The key parameters that the fund looks into while selecting the companies are low debt to operating cash flow and Return on Invested Capital greater than the Cost of Capital.

The other half of the portfolio is focused on the emerging businesses in the mid and small cap space. These are businesses in down cycles or where scale is yet to be achieved or where companies can fund growth without repeated dilutions. Many times, earnings do not capture fair value of the businesses in down cycles or that are yet to achieve scale and hence popular ratios such as P/E ratio might not be the relevant metric to value the company. Thus, the fund believes that a better parameter for relative value evaluation could be the Enterprise to Sales Ratio and Price to Book Ratio. The fund manager also filters stocks for sustained improvement in Return on Equity and Return on Capital Employed and those with Earnings growth higher than Nifty.

This segregation helps in easy management of risk and liquidity management of the portfolio.

The scheme would invest 65-100% in equity and equity related instruments, out of which 15% - 50% would be invested in small cap stocks and 50% - 100% would be invested in midcap stocks. It would also invest 0% - 35% in equity and equity related instruments of companies which have market capitalization higher than the highest component of Nifty Free Float Midcap 100 index (i.e. with market capitalization above the Small-Midcap socks). 0% - 35% would be invested in Debt & Money Market Instruments (including securitized debt instruments.)

 

Fund Manager

Anoop Bhaskar

Mr. Anoop Bhaskar serves as Head of Equities at IDFC Asset Management Company Limited since April 2016. Previously, Mr. Bhaskar served as Head of Equity and Fund Manager at UTI Asset Management Company (P) Ltd. since April 2007. Mr. Bhaskar joined UTI Asset Management Company (P) Ltd. in April 2007. 

He previously served as the Head of Equity at Sundaram BNP Paribas Asset Management Co. Ltd. from August 2003 till March 2007. Mr. Bhaskar was a Senior Research Analyst and Portfolio Manager at Templeton Asset Management Ltd. from 1993 to 2003. Before that, he served as a Manager of Investments at Shriram Financial Services Ltd. from 1992 to 1993.

Other schemes managed by Mr. Bhaskar are IDFC Sterling Equity Fund and IDFC Premier Equity Fund.

Mr. Bhaskar has earned an MBA in Finance from Symbiosis Institute of Business Management, Pune and a B.Com. from the Delhi University.

Our View

IDFC Sterling has seen a pick up in performance after Mr. Anoop Bhaskar took charge of the fund in 2016. It continues to be a good fund in the mid and small cap space and makes sense for aggressive investors.

 

 

 
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