An able fund manager, a solid team, strong processes, and one of the best fund companies in the industry all go into the Gold.
The investment process is research-intensive and relies heavily on a bottom-up approach. Portfolio managers and analysts jointly decide on the coverage list where they look for growth companies that fit their qualitative requirements. Only companies that have durable competitive advantages, sustainable business models, strong entry barriers, and good corporate governance standards are included in the coverage list. Analysts evaluate companies using discount cash flow models and quantitative parameters relevant to the sector.
Sector-based model portfolios created by analysts are compiled by the research head and are combined to create market-cap-based portfolios (large-, small/mid-, and multi-cap).
Franklin India Bluechip
- Morningstar Analyst: Himanshu Srivastava
- Fund Manager: Anand Radhakrishnan
- Analyst Rating: Gold
- Fund Rating: 4 stars
- Category: Large Cap
- Investment Style: Large Growth
- Process: The fund manager uses a large-cap model portfolio as his base and constructs his investment portfolio around it.
- Performance: On Radhakrishnan’s watch (April 2007 to November 2017), the fund (up 13%) has beaten its benchmark, the Sensex (up 9%) as well as 75% of its Morningstar Category peers.
This is a true-blue large-cap fund.
Anand Radhakrishnan’s portfolio displays strong convictions and deviates significantly from the benchmark index and category peers both in terms of stock picks and sector weights. For instance, as of October 2017, Radhakrishnan is underweight the consumer staples sector (7%) vis-à-vis the benchmark index (10%) given the sector’s rich valuations. Instead, he prefers stocks in the healthcare sector as he believes they have reasonable growth prospects, generate steady cash flows, and trade at cheaper valuations.
Radhakrishnan prefers private-sector entities over their public-sector counterparts, in line with his belief that the former offer more robust business models and superior operational efficiencies. For instance, private-sector banks such as HDFC Bank and ICICI typically feature as core holdings. Hence, the portfolio’s core exposure continues to be in the private banks and consumption-oriented stocks. In the recent times, the manager has shifted his focus on stocks which stand to benefit from the pickup in urban consumption than rural consumption.
Radhakrishnan will back his convictions, but isn’t stubborn. Hence, in the wake of increasing competition in the telecom space he didn’t hesitate to trim exposure in one of his top and long-held holdings, Bharti Airtel, in the past. The cash exposure rarely accounts for more than 10% of assets.
The fund manager is fairly valuation-conscious and sells/underweights stocks he believes are fully valued. This has helped the fund fare competitively versus peers in market downturns. Also, he does not shy away from taking big long-term contrarian bets if he believes the issue has good growth prospects but he may face near-term headwinds. His overweight positions in the telecom sector vis-à-vis peers this year and exposure to cement stocks in 2013 are examples of this approach. Radhakrishnan trades roughly 5%-10% of the portfolio. These tend to be established names whose price points he understands well.
The fund tends to perform well in market corrections, given his emphasis on quality and valuations. The years 2008 and 2011 are a case in point, as despite lower cash allocation, his skilled stock selection helped the fund outscore most of the competition. The fund closed 2009 and 2010 in the top quartile, thanks to some smart investments in financials (private-sector banks) and technology stocks in 2009, and consumer staples and technology sectors in 2010.
Radhakrishnan’s top picks, such as Bharti Airtel and Infosys Tech, were the main detractors from the fund’s performance in 2012, which was a down year. While Radhakrishnan’s contrarian picks from the metal and mining sector fared poorly in 2013, relatively lower small/mid-cap exposure dragged its performance down vis-à-vis peers in 2014. The fund had a good run in 2015 and 2016 as it outperformed 73% and 79% of category peers, respectively. However, the fund has struggled this year (until November 2017) as the manager’s exposure in areas where cash payment is the primary source of transaction was severely affected after demonetisation last year. Also, exposure to the healthcare sector (particularly Dr. Reddy, Lupin, and Sun Pharma) dragged its performance down.
Read the brief analyst note here.
Franklin India Prima Plus
- Morningstar Analyst: Himanshu Srivastava
- Fund Manager: Anand Radhakrishnan
- Analyst Rating: Gold
- Fund Rating: 4 stars
- Category: Flexi Cap
- Investment Style: Large Growth
- Process: The fund manager is benchmark-agnostic while constructing the portfolio and selects stocks using a bottom-up approach.
- Performance: On Radhakrishnan’s watch (April 2007 to November 2017), the fund (up 14.8%) has beaten its benchmark (up 10.5%) and the average return delivered by its Morningstar Category peers (13.6%).
Radhakrishnan backs his convictions by taking concentrated bets at the stock level but that has not impaired the fund’s risk/reward profile. He also has a penchant for contrarian bets that often results in a portfolio that is dissimilar to that of the typical peer. For instance, as of October 2017, he held 21% in the consumer cyclical sector versus the category average of 15%. Similarly, his investments in cement, metal, and mining stocks in 2013 during an economic downturn and in telecom sector in 2017 bear out his willingness to invest against the grain.
Radhakrishnan prefers private-sector entities over their public-sector counterparts, in line with his belief that the former offer more robust business models and superior operational efficiencies. For instance, private-sector banks such as HDFC Bank and ICICI typically feature as core holdings. Radhakrishnan trades with roughly 10-15% of the portfolio. These tend to be established names whose price points he understands well. A long-term orientation is perceptible in the overall portfolio as borne out by the turnover ratio (March 2017: 23%; March 2016: 13%).
The fund was earlier a part of the large-cap category and was moved to the flexi-cap category in November 2016. Despite the change in the category, the fund’s performance vis-à-vis peers continues to be noteworthy.
After a tough 2007, Radhakrishnan outscored most of the competition in the downturn of 2008 despite having lower cash allocation than the norm. While the fund struggled in 2009 and 2010 (down 16%), it had its best year ever in a peer-relative sense in the downturn of 2011, outperforming 93% of the peers with the help of stocks such as Idea Cellular, CRISIL, and Grasim.
Radhakrishnan’s investment style wasn’t suited to navigating the volatile upturn of 2012. It also didn’t help that his top picks, Bharti Airtel and Infosys, fared poorly, thus hurting returns. But thanks to his skilled stock-picking, the fund made a comeback in 2013 and continued its good run until 2016. The fund has been struggling this year as the manager’s exposure in areas where cash payment is the primary source of transaction was severely affected after demonetization last year. Also, the exposure to the healthcare sector (particularly Dr. Reddy, Lupin, and Sun Pharma) dragged its performance down.
Read the brief analyst note here.
