Franklin India Flexi Cap fund: Modest gains with downside protection

This multi-cap invests across the market spectrum, thus mitigating volatility risk



Mid- and small-sized stocks, which were the star performers in 2016, continue to outshine large-caps in 2017 too. Equity schemes that invest in mid- and small-sized companies have delivered handsome gains for investors.

However, uncertainties in the global market and their possible rub-off on the country’s economy are a concern.

Multi-cap schemes with the flexibility to move across the market spectrum may be best placed to ride the volatility as well as capitalise on the opportunity in the mid- and small-cap space.

While most multi-cap schemes have fared well in the past year, there were some that did not keep pace with their benchmark. Franklin India Multi cap Fund, which has had a consistent track record of beating its benchmark, the Nifty 500 Index in the past, has lagged its benchmark in the last 12 months.

The fund’s strategy of taking shelter in less-volatile large-cap stocks, possibly in anticipation of correction and volatility in mid- and small-cap stocks, hurt performance over the last one year.

The scheme’s one-year return has been nearly 6 percentage points lower than the benchmark. However, over three- and five-year periods, the fund has delivered higher returns than the benchmark.

Currently about 90 per cent of the scheme’s assets under management are invested in stocks with market capitalisation of above ₹10,000 crore.

While this will cushion the scheme against any sharp fall in the market, the upside may be capped, should the out-performance of mid- and small-caps continue in the near future. Given the scheme’s cautious stance, it may suit investors looking for modest gains with downside protection.

The fund’s consistency — as measured by the number of times it has outperformed the Nifty 500, in the last five years — has slipped from 91 per cent for the five-year period ended April 2016 to 76 per cent for the April 2012-17 period.

This is largely on account of the under-performance over the last one year.

Besides a large-cap slant, the scheme also lost out on the rally in the stocks of banks and non-banking financial companies as it took measured exposure to financial stocks.

However, it has added banks and financial stocks to its portfolio over the last few months.

Likewise, exposure to pharma stocks such as Sun Pharmaceuticals and Dr Reddy’s Laboratories, which were bogged down by regulatory issues, dragged down performance.

While these stocks will help performance in the medium to long term, short-term under-performance cannot be ruled out, given that their manufacturing facilities are still under the regulatory scanner.

The scheme has also reduced exposure to IT stocks, which may bear the brunt of changing trade policies of the US and other key countries.



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