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Fund Analysis: IDFC Premier Equity: Terrific track record
Thu, Jan 24, 2013
Source : Sanjay Kumar Singh, Citrus Interactive

IDFC Premier Equity is a mid- and small-cap growth-oriented fund. It was started in September 2005 and has so far managed to accumulate assets under management (AUM) worth Rs. 3,396.71 crore. This fund is benchmarked against the BSE 500 Index.

Fund performance

Scheme

1-yr

3-yr

5-yr

IDFC Premier Equity Fund-A(G)

40.84

15.10

7.63

BSE-500

31.20

3.48

-2.47

Data as on December 31, 2012; all figures in %

Over the last one year (which coincides with calendar year 2012) the fund has earned a return of 40.84 per cent, handsomely beating its benchmark, which rose only 31.20 per cent. It has also beaten its benchmark over the three- and five-year horizons by a considerable margin.

Scheme

2011

2010

2009

2008

2007

IDFC Premier Equity Fund-A(G)

-18.34

32.07

97.85

-53.46

110.47

BSE-500

-27.78

16.35

85.34

-58.47

63.02

Out/underperformance

9.44

15.72

12.51

5.01

47.45

*Figures in %;**figures in %age pts.

Next, let us turn to the fund's calendar year returns to see if it has been consistent. The fund has beaten its benchmark in all the five calendar years prior to 2012. This is a laudable achievement. In the bull market of 2007, the fund beat its benchmark by a stunning margin of 47.45 percentage points.

The fund has also provided sound downside protection to its investors in declining markets. In both 2011 and 2008 it managed to decline less than its benchmark.

Portfolio characteristics

Number of equity holdings. According to its latest portfolio disclosure, the fund currently holds 45 stocks. This is marginally higher than the median stock count of 43 for the diversified-equity category.

Over the last five years the fund's stock count has averaged 26.3. Over this period the equity count has fluctuated from 15 to 47. The fund manager tends to change the equity count in his portfolio, depending on the outlook for equities.

Sector concentration.

 

Top 3

Top 5

Top 10

IDFC Premier Equity Fund-A(G)

23.51

35.98

58.68

Median-diversified equity

34.43

46.58

67.39

Figures in %

The fund's concentration in the top three, five and 10 sectors in its portfolio is lower than the median for the diversified-equity category.

Company concentration.

 

Top 3

Top 5

Top 10

IDFC Premier Equity Fund-A(G)

14.63

23.71

41.22

Median-diversified equity funds

18.17

27.25

44.66

Figures in %

The fund's concentration in the top three, five and 10 stocks in its portfolio is lower than the median for the diversified-equity category.

Thus, an examination of criteria such as number of equity holdings, sector concentration and company concentration shows that the fund runs a diversified portfolio.

Turnover ratio. According to its latest disclosure (March 2012), the fund had a turnover ratio of 326 per cent. This was much higher than the median of 72 per cent for the diversified-equity category.

Even historically the fund has tended to have a high turnover ratio. We have data available since June 2008. Since then its turnover ratio has averaged 257.10 per cent.

Expense ratio. Currently the fund's expense ratio is 1.88 per cent. This is much lower than the median of 2.36 per cent for the diversified-equity category.

Cash allocation. In December 2012 the fund had a cash allocation of 6.04 per cent. Over the past five years its allocation to cash has averaged 7.49 per cent. In 2012 the fund's cash allocation averaged 6.62 per cent.

A cash allocation of 5 per cent or less is considered optimal. Going by that criterion, this fund tends to have a marginally higher allocation to cash. 

Risk.

 

SD

Beta

IDFC Premier Equity Fund-A(G)

0.8801

0.6258

Median-diversified equity category

0.9582

0.7979

An examination of measures of risk such as standard deviation and beta (calculated over three-year period) shows that the fund has a lower level of risk than the median for the diversified-equity category.

Risk-adjusted returns.

 

Treynor

Sharpe

IDFC Premier Equity Fund-A(G)

0.0685

0.0487

Median-diversified equity category

0.0212

0.0176

An examination of measures such as Treynor ratio and Sharpe ratio (also calculated over three-year period) shows that the fund has a much higher level of risk-adjusted returns than the median for the diversified-equity category.

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.

In 2011 the fund declined -18.34 per cent, beating its benchmark by 9.44 percentage points.

In 2011 the fund had an average allocation of 39 per cent to large-cap stocks, 15.58 per cent to mid-cap stocks, 5.80 per cent to small-cap stocks, 17.13 per cent to other equities, and 22.48 per cent to others.

In 2011 only the BSE FMCG Index turned in a positive performance (9.27 per cent). All other sectors gave 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

January 2011 (%)

December 2011 (%)

Raised/lowered
allocation (%)

Textile

4.19

7.75

3.56

Gas Transmission/Marketing

 

3.30

3.30

Bank – Private

 

2.97

2.97

Electric Equipment

 

2.84

2.84

Consumer Food

4.67

7.13

2.46

Courier  Services

2.68

3.33

0.65

Leather

2.85

3.40

0.55

Fertilisers

4.12

4.61

0.50

Power Generation/Distribution

2.93

3.15

0.22

Paints

4.99

3.44

-1.55

In 2011 the fund raised its allocation to sectors like textile, gas transmission and marketing, private banks, electrical equipment, consumer food and so on (see table above). Among its top 10 sector holdings, the only sector to which the fund reduced its exposure was paints.

Sector

Fund (%)

BSE-500 (%)

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

Textile

7.75

0.27

7.48

Consumer Food

7.13

1.30

5.83

Fertilisers

4.61

0.48

4.13

Leather

3.40

0.09

3.31

Courier  Services

3.33

0.03

3.30

Gas Transmission/Marketing

3.30

0.70

2.60

Paints

3.44

0.85

2.59

Electric Equipment

2.84

1.28

1.56

Power Generation/Distribution

3.15

3.53

-0.38

Bank – Private

2.97

13.06

-10.09

Figures are for December 2011

By the end of 2011, the fund was overweight vis-a-vis its benchmark on textile, consumer food, fertilisers, leather, courier services and so on (see table above). Two sectors on which it was underweight vis-a-vis its benchmark were private banks, and power generation and distribution.

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

Company

January 2011 (%)

December 2011 (%)

Raised/lowered
allocation (%age pts.)

Gujarat State Petronet Ltd.

 

3.30

3.30

Kotak Mahindra Bank Ltd.

 

2.97

2.97

Siemens Ltd.

 

2.84

2.84

Page Industries Ltd.

4.19

5.25

1.06

Blue Dart Express Ltd.

2.68

3.33

0.65

Bata India Ltd.

2.85

3.40

0.55

Coromandel International Ltd.

4.12

4.61

0.50

Torrent Power Ltd.

2.93

3.15

0.22

Glaxosmithkline Consumer Healthcare Ltd.

4.67

4.81

0.14

Asian Paints Ltd.

4.99

3.44

-1.55

In 2011 the fund raised its allocation to stocks like Gujarat State Petronet, Kotak Mahindra Bank, Siemens, Page Industries, Blue Dart and so on. The only stock among its top 10 holdings to which the fund reduced its exposure was Asian Paints.

Company Name

Fund (%)

BSE-500 (%)

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

Coromandel International Ltd.

4.61

0.09

4.52

Glaxosmithkline Consumer Healthcare Ltd.

4.81

0.33

4.48

Bata India Ltd.

3.40

0.09

3.31

Blue Dart Express Ltd.

3.33

0.03

3.30

Gujarat State Petronet Ltd.

3.30

0.08

3.22

Siemens Ltd.

2.84

0.24

2.60

IRB Infrastructure Developers Ltd

2.47

0.06

2.41

Kaveri Seed Company Ltd.

2.32

0.02

2.30

Kotak Mahindra Bank Ltd.

2.97

0.87

2.10

Shriram Transport Finance Company Ltd.

2.14

0.32

1.82

Figures are for December 2011

By the end of the year the fund was overweight vis-a-vis its index on stocks like Coromandel International, Glaxo Smith Kline Consumer Healthcare, Bata India, Blue Dart Express and so on (see table above). Among its top 10 holdings the fund wasn’t underweight vis-a-vis its benchmark on any stock.

2012. In 2012 the BSE Sensex rose 25.70 per cent, the BSE Midcap Index rose 38.52 per cent and the BSE Small-cap Index rose 32.97 per cent.

In calendar year 2012 the fund rose 40.84 per cent, and was thus much ahead of its benchmark (BSE 500) which rose 31.20 per cent.

In 2012 the fund had an average exposure of 42.84 per cent to large-cap stocks, 22.07 per cent to mid-cap stocks, 9.27 per cent to small-cap stocks, 16.91 per cent to other equities and 15.32 per cent to the ‘others’ category. That year the fund's exposure to cash averaged 6.93 per cent.

In 2012 the best performing indexes were BSE Bankex (56.72 per cent), Realty (53.44 per cent), FMCG (46.61 per cent), Consumer Durables (46.08 per cent), Auto (40.31 per cent) and so on.

Sector

January 2012 (%)

December 2012 (%)

Raised/lowered allocation (%)

Breweries & Distilleries

 

7.38

7.38

Bank – Public

 

7.18

7.18

Consumer Food

4.37

8.94

4.57

Finance – NBFC

2.77

5.20

2.43

Gas Transmission/Marketing

3.17

5.52

2.34

Power Generation/Distribution

3.03

4.52

1.49

Paints

3.86

4.80

0.94

Fertilizers

3.96

4.57

0.61

Courier  Services

3.23

3.62

0.38

Textile

8.08

6.95

-1.12

In 2012 the fund raised its allocation to sectors like breweries and distilleries, public banks, consumer food, financial NBFCs, gas transmission and marketing, and so on. Among its top 10 holdings, the only sector to which the fund reduced its exposure was textile.

Sector

Fund (%)

BSE-500 (%)

Over/under weight

vis-à-vis benchmark (%age pts.)

Consumer Food

8.94

1.30

7.64

Textile

6.95

0.27

6.68

Breweries & Distilleries

7.38

0.86

6.52

Gas Transmission/Marketing

5.52

0.70

4.82

Fertilisers

4.57

0.48

4.09

Paints

4.80

0.85

3.95

Finance – NBFC

5.20

1.40

3.80

Courier  Services

3.62

0.03

3.59

Bank – Public

7.18

5.05

2.13

Power Generation/Distribution

4.52

3.53

0.99

Figures are for December 2012

By the end of December 2012 the fund was offer great vis-a-vis its benchmark on consumer food, textile, breweries and distilleries, gas transmission and marketing, fertilisers and so on. Among its top 10 sector holdings the fund was not underweight on any sector vis-à-vis its benchmark.

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

Company

January 2012 (%)

December 2012 (%)

Raised/lowered

allocation (%age pts.)

United Spirits Ltd.

 

5.07

5.07

State Bank Of India

 

4.77

4.77

Kaveri Seed Company Ltd.

 

4.51

4.51

Asian Paints Ltd.

3.86

4.80

0.94

Blue Dart Express Ltd.

3.23

3.62

0.38

Glaxosmithkline Consumer Healthcare Ltd.

4.37

4.43

0.06

Torrent Power Ltd.

3.03

2.95

-0.07

Page Industries Ltd.

4.84

4.57

-0.26

Bata India Ltd.

4.00

3.58

-0.42

Coromandel International Ltd.

3.96

2.92

-1.04

In 2012 the fund raised its allocation to stocks like United Spirits, State Bank of India, Kaveri Seed Company, and so on. Among its top 10 holdings it lowered its allocation to stocks like Coromandel International, Bata India, Page Industries and Torrent Power.

 

Company

Fund (%)

BSE-500 (%)

Over/under weight

vis-à-vis index (%age pts.)

United Spirits Ltd.

5.07

0.59

4.48

State Bank Of India

4.77

2.26

2.51

Punjab National Bank

2.42

0.4

2.02

FAG Bearings India Ltd.

1.42

0.05

1.37

Bosch Ltd

1.61

0.29

1.32

Jet Airways (India) Ltd.

0.93

0.03

0.90

Globus Spirits Ltd

0.74

 

0.74

HBL Power Systems Ltd.

0.09

 

0.09

Kotak Mahindra Bank Ltd.

0.18

0.87

-0.69

HDFC Bank Ltd.

2.50

4.28

-1.78

Figures are for December 2012

By the end of 2012 the fund was overweight vis-a-vis its index on United Spirits, State Bank of India, Punjab National Bank, and so on. Among its top 10 holdings, the fund was underweight vis-a-vis its benchmark on HDFC Bank and Kotak Mahindra Bank

Fund manager

The fund manager, Kenneth Andrade, is head of investments at IDFC Mutual Fund. He has around 15 years of experience in equity research and fund management. He has been in charge of this fund since March 2007. Meenakshi Dawar has been co-fund manager since October 2011.

Conclusion

IDFC Premier Equity Fund is undoubtedly the leader of the mid-cap pack. To have beaten the benchmark in every calendar year but one since inception is a terrific performance.

Its track record has made the fund the second-largest within the mid- and small-cap space. Bear in mind that beating the benchmark does become difficult as corpus size becomes large, especially in the mid- and small-cap space. So far, however, the fund manager has proved the doubting Thomases wrong.   

If you wish to partake of this fund’s returns, you may have to exercise patience as it at times closes down for fresh investment. But do exercise patience as the rewards will be rich.

 
 
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