Focused equity funds hog limelight

Mumbai: An equity mutual fund (MF) category namely 'focused equity funds' are increasingly finding favour among the investors. As per the Sebi Scheme categorization mandate, the portfolio in this type of fund can hold a maximum of 30 stocks.

The focussed equity funds are offering attractive returns to the investors. For instance, Nippon India's focussed equity fund has delivered a 61 per cent return for its investors over the last one year. "Nippon India focused fund follows a concentrated and high conviction strategy. Fund stayed away from expensive quality names in last 4-5 quarters and was early in identifying themes such as corporate banks, contract manufacturing and internet stocks in India," Vinay Sharma, Fund Manager, Nippon India Mutual Fund told Bizz Buzz.

Also, in 2018-19, we believed that cyclical stocks were relatively very cheap compared to some of the consumer stories and fund was heavily invested in them.

That helped us in the last few quarters, he added. The objective of a focused fund is to deliver higher returns by investing in a limited number of high conviction stocks which hold the potential to deliver strong growth prospects. If the high conviction stock ideas are proven right then the gains pocketed can be phenomenal.

During the onset of the pandemic, fund managers steered the focus of the portfolio to themes that could benefit from the disruption due to Covid-19 impact. The focus was to invest in companies with strong balance sheets and better earnings visibility. The portfolio was overweight names which had the potential to tide over the supply chain dislocation in the quarters ahead. Another factor which aided the fund performance was that the scheme had a sizeable exposure towards rural economy in order to benefit from sustained demand, a strategy which worked very well for the fund. As the market recovered from its March lows, each of these themes played out helping the fund deliver outsized gains. Now, the markets have rallied and are in a different zone, the fund manager has tweaked the portfolio as well in order to make way for the next set of winners. The flexibility to move across theme/market caps and relatively smaller fund size provides ample opportunities for stock selection. The stocks which are a part of the portfolio indicate that the theme is macro in nature. The scheme has exposure towards sectors which are likely to benefit from the overall economic recovery. The portfolio has names which are likely to benefit from the pickup in credit growth and capex cycle, real estate, etc. The portfolio also has good exposure towards large financial companies which may benefit from economic recovery cycle (better credit growth + lower credit cost) and from consolidation in PSU space. In short, the current portfolio is more biased towards financials and consumer non-durables, which is very different from what it was a year ago, when the portfolio was biased towards defensives like pharma and IT.