Why Reliance Vision gets a Bronze rating

By Morningstar Analysts |  03-05-17 | 
 

Launched in 1995, Reliance Vision is a veteran of sorts, so to speak. The fund has witnessed the euphoria of the tech boom and its fall from grace, and numerous up and down markets including the global financial crisis of 2008. In its heyday, it was a head turner with calendar year returns of 74.58% (2002) and 154.87% (2003).

That was achieved by investing heavily in mid-cap stocks, rapid churning of the portfolio and then plunging into large caps when they made a comeback. The fund had an acute focus on spotting companies that offered good value and when the opportunity did not present itself, the fund manager bided his time with substantial cash calls (no longer the case).

The fund disappointed in 2004 with a return of 19.81% but bounced back in 2005 with 53.47%.

Unfortunately, those days of glamour have been left behind. As the fund’s assets swelled, performance stabilised. On a year-on-year basis, the fund has marginally underperformed over the past decade, consistently falling in the third/fourth quartile since 2007 (except in 2008 and 2014). A look at the 3-, 5-, 10-year returns also disappoints, relative to the category average.

So it might surprise our reader to note that senior fund analyst Kavitha Krishnan has assigned a Bronze rating to this fund. A Bronze-rated fund has advantages that outweigh disadvantages and has sufficient analyst conviction to warrant a positive rating (as against a Neutral or Negative).

Kavitha believes that the fund’s intrinsic strength lies in a competent fund manager and a strong process.

Ashwani Kumar plies a growth-at-a-reasonable-price strategy. He typically scouts for companies with strong and sustainable business models. He will be flexible with valuations and pay what he thinks is a fair price, given the company’s growth prospects. He tends to take a 2- to 3-year view on stocks and focuses on factors such as ROE and ROCE when evaluating companies.

The research-orientation and qualitative overlay seeks to identify companies with strong management teams, robust business models, superior technology, brand equity, favourable cost and sustainable competitive advantages. In other words, he looks for companies which have a sustainable edge vis-à-vis the competition.

So though the manager runs a concentrated portfolio (around 33 stocks with the top 10 cornering 65% of the portfolio), he mitigates the concentration risks by ensuring that he buys quality.

On a closing note, Kavitha is of the opinion that this fund is capable of delivering a far superior showing. As demonstrated in recent years, his strategy won’t always work, but we believe it will come to the fore in a more broad-based market rally. This fund remains a viable proposition for patient investors who can digest volatility and are comfortable with a sector heavy portfolio where a major portion of the assets under management are invested in three to four meaningful sectors.

You can read the brief analyst note here.

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sandeep deshmukh
May 6 2017 11:58 AM
All funds experience good and bad times. Even Prashant Jain suffered because of his contra bet of SBI. But when the tide turned, he came back with a bang. Reliance Vision seems to perpetually suffer.
Leaving aside the performance, it is disconcerting that you relying on lame excuses as a justification. For example, conviction-based manager (is that a license for failing year after year?) and polarised market (that was last seen in 2012-13).
It cuts a sorry figure when those portraying themselves as research experts are infact clueless about the basics.
anwinder pahuja
May 4 2017 07:33 PM
Your article (Morningstar’s Take) says that this fund invests aggressively. One expects such funds to do well in rising markets (like present) and poorly in down markets. If the fund consistently fails to perform as per profile, then questions will be asked.

Simply mentioning the fund’s intrinsic strengths over and over again doesn’t amount to research. By the way, what polarised markets are you referring to? Except for a couple of sectors (pharma & IT), the present rally is quite broad-based. We are in the midst of a typical Indian bull run. Does this fund need all sectors to do well, to deliver good returns? Great research!

Perhaps you can take comfort from the proverb: Even a broken clock is right twice a day. One day this fund will do well (thanks to law of averages), and then you will be able to claim vindication.
Dhruva Chatterji
May 4 2017 04:28 PM
Another point--- Reliance Growth and reliance vision has the same inception date of around oct 1995 and reliance growth NAV is above Rs. 1000 and Relaince Vision NAV is only at Rs. 500. Can you imagine the difference in performance . I know that reliance growth in the past had been a mid/small cap fund but still this divergence in performance is HUGE!
Dhruva Chatterji
May 4 2017 04:21 PM
I wonder why morningstar has given this fund a positive rating. This fund used to be a force to be reckoned with in the hey days of 2004-2007. After the financial crisis it has been a disappointment in almost all years. Its sister fund a multicap fund--- Reliance Growth has meanwhile managed to put up a much better performance even though the inception of both funds is around the same.

There are plenty more funds in the market which still deserve a positive rating from Morningstar. Just my thought!
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