With the coronavirus scare spooking the global markets, risk aversion sentiment is at its peak. Many financial market participants are worried that the fall-out on Indian economy will be much worse than anticipated. On days such as this, mutual fund investors, both new and old, compare how their actively managed largecap funds have done against the Sensex or Nifty. There is no rule of law that a largecap fund should fall less or more. RupeeIQ did some data crunching to see if there are indeed some largcap funds who are quite consistent in terms of falling less than the overall market on the worst days in the last five years ended March 12, 2020. And, we found some interesting trends. Read on to know more.

Study method

Whenever a fund does better than the market on a particular day, RupeeIQ readers, as well as experts, have previously argued that one day’s performance does not really prove much. We agree, partially. We think it is okay to give credit to a fund that has done better than Mr. Market on a day. Our argument has been that if a fund cannot score on key days, it will find it difficult to score over a longer-term period. It, however, is much better to look at how funds have done compared to the market over a longer period. So, we looked at many worst days to look for funds that are better wealth protectors.

We chose the period between March 12, 2015 to March 12, 2020. This is a five year period. We then looked at the five worst days in terms of percentage drops. Once we looked at the worst five days, we repeated the exercise to cover more worst days and hence we reached the worst 20 days.

The worst 20 days fall in 4 years i.e. 2015, 2016, 2018 and 2020. The minimum fall is 2.18% (7-January-2016) and the maximum fall is 8.18% (12-March-2020). This list does not include the 7.96% drop in Sensex on 16-March-2020. Out of the worst 20 days we looked at, 2015 has 7 days, 2016 has 4 days, 2018 has 4 days and 2020 has 5 days. So, it is quite distributed. 2017 is one year when market drops were not as harsh, so they don’t figure in the worst 20 days.

We have looked at Sensex drops (without dividend declared effect), and we don’t feel it will materially change things since we are looking at just 1 day-change.

We looked at the NAV movement of regular plans.

Study findings

We found that about 32 actively managed largecap funds have a 5-year history that matched our study period. We ignored passively managed largecap index funds, exchange traded funds, and smart beta funds.

In most of the 20 worst days, a large portion of actively managed largecap fund fared better than the Sensex. But, there is a catch, which we will tell you soon.

Top 20 Worst Days for Sensex

Many funds barely beat the Sensex by as low as 1 percentage point (0.01%) on some days, which is not really out-performance. Such a low margin of out-performance can combine actual out-performers with funds that just beat the Sensex. Here is a table on how many of the largecap funds fell less than the Sensex on the worst 20 days.

Stand-out performers

Due to the above reason, we will talk about funds that have done better than the Sensex by some margin and most consistently. A few largecap funds numerically appear to have done better than Sensex on worst market fall days, but are mostly in the bottom of the out-performers chart. We will ignore those funds.

Here is RupeeIQ’s list of largecap funds worth mentioning.

* JM Large Cap – This fund is one of the most consistent wealth protectors. Out of the worst 20 days studied by us, JM Large Cap Fund fell lower than the Sensex on as many as 17 days. That’s a strike rate of 85%. Importantly, JM Large Cap Fund was among the top 3 out-performers in 9 of those 17 days. Clearly, the portfolio has been constructed and maintained in such a way that it is probably designed to fall lower than the benchmarks. JM Large Cap Fund is managed by Asit Bhandarkar and Chaitanya Choksi. The scheme is one of the oldest, launched in 1995. Despite its wealth protection characteristics, its current AUM is quite low at Rs 3,100 crore odd.

* Sundaram Select Focus – Another under-rated largecap fund that figures in our list of consistent wealth protectors is Sundaram Select Focus Fund. Don’t go by its AUM size of about Rs 1,000 crore. Sundaram Select Focus Fund, launched in 2002, and currently managed by Rahul Baijal, has fallen lower than the Sensex on 17 out of 20 days. This is a strike rate of 85%, like JM Large Cap Fund. The fund’s strategy to have a largecap concentrated portfolio with no more than 30 stocks across sectors seems to have paid rich dividends when it comes to downside protection. Similar to JM Large Cap Fund, Sundaram Select Focus Fund is within top-5 out-performers in 8 out of 17 days.

* BNP Paribas Large Cap – Like JM Large Cap and Sundaram Select Focus, the BNP Paribas Large Cap Fund fell lower than the Sensex on as high as high as 17 of the worst 20 days for the Sensex. This is no mean feat. It is the 3rd and last fund with a high 85% strike rate. Compared to the mammoth-sized largecap funds that dominate largecap performance narrative, the BNP Paribas Large Cap Fund is actually less than Rs 800 crore in AUM size. It was launched in 2004. The fund is currently managed by Karthikraj Lakshmanan and Abhijeet Dey, who both started managing the fund since Oct-Nov 2016. The BNP Paribas Large Cap Fund is within the top-5 wealth protectors in 7 of the 17 days.

* Franklin India Bluechip – One of the oldest largecap schemes, the Rs 5,800-crore Franklin Bluechip Fund caught our eye. With a wealth protection strike rate of 80% i.e. 16 of 20 worst days, the modest-sized fund figures among the top-8 outperformers in half of the 16 days. Also, there have been days where very few largecap funds have been able to beat the Sensex and it is on those days that Franklin Bluechip Fund has still cornered its space in those schemes that did fall lower. This is a trait it shares with JM Large Cap, Sundaram Select Focus and BNP Paribas Large Cap. The Franklin fund is currently managed by CIO-Equity Anand Radhakrishnan, Roshi Jain & Pyari Menon.

* Motilal Oswal Focused 25 – Here is another pint-sized largecap fund that is worth mentioning. With a strike rate of 75%, Motilal Oswal Focused 25 Fund has fallen lower than the Sensex in 15 of the 20 days we studied. Importantly, the fund’s performance figures in top-3/4 in one-third of those 15 days when it beat Sensex in a falling market. The scheme’s concentrated approach is known for diversifying risk and that could be linked to a thing or two with how the portfolio has shielded investors in those nasty days when the Sensex fell in the last 5 years. The Rs 1,200-crore fund is one of the youngest largecap funds in our study group and is currently managed by Siddharth Bothra (equity) and Abhiroop Mukherjee (debt).

RupeeIQ take

As our study shows, investing in an actively managed largecap fund does not mean you have a sure shot at wealth protection during the downside. How the equity component is managed and run is equally important. If one runs a largecap fund as a conservative choice and maintains a beta less than 1, then the fund will on most days fall less than the market. On the flip side, a largecap fund with a distinctly high beta nature will out-perform markets on good days but also fall more than the market on the bad days. Largecap funds keep money in largecaps as per statutory limits but what fund managers do with the largecap stocks in their portfolio is probably important to track.

Do remember that the largecap funds mentioned above may or may not be that good at capturing upside days i.e. days when the market zooms. But, what they do and like a champion, is protect downside. If losing less is a fund attribute you like, take a closer look at them.

Kumar Shankar Roy

Kumar Shankar Roy is contributing editor with RupeeIQ. Kumar is a financial journalist, with a functional experience of 15 years. He tracks mutual funds, insurance, pension, PMS, fixed income/debt and alternative investments markets closely. He has worked for The Times of India, The Hindu Business Line, Deccan Chronicle Group, DNA, and Value Research, among others, across different cities in India. He is deeply interested in marrying data insights with actionable opinion. He can be contacted at [email protected].

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