Fund Review: Franklin India Smaller Companies Fund beats small cap meltdownSmall cap companies have been battered over the past three months. The Nifty Small Cap 250 Total Returns Index is down 4.17% over that time period. In comparison, Franklin India Smaller Companies Fund is only down 0.14%. This is how a well-managed fund demonstrates outperformance or alpha. The fund also chose not to close its gates to inflows at the height of the small-cap boom, demonstrating its ability to handle flows and find investment ideas. It has been managed by R Janakiraman since 2008 and is highly popular among small cap investors. Srikesh Nair and Hari Shyamsunder were added as co-fund managers in May 2016.

Performance

The fund has consistently outperformed its benchmark, even during times of market corrections, as the table below shows. Returns have come down in more recent time periods but this is in line with the market.

Fund/Index One Year Three Years Five Years 10 Years
Franklin India Smaller Companies 8.24% 17.36% 29.24% 19.29%
Nifty Small Cap 250 TRI 1.81% 15.36% 22.24% 9.82%

Source: Value Research. Returns as of 11th June 2018

Portfolio

The fund was characterised as a ‘small cap’ fund in the new SEBI classification system. This meant that it had to invest 65-100% of its assets in companies falling below the top 250 by market capitalisation and the rest 0-35% in other types of companies or debt.

According to Value Research, the fund has invested 47% of its assets in small caps, 39% in mid caps and the balance 14% in large or giant caps. However, the Value Research definition does not tally precisely with the SEBI definition, which may explain the variance. The fund is highly diversified with as many as 73 stocks. Finolex Cables is the top holding, followed by Repco Home Finance and HDFC Bank.

RupeeIQ Take:

Small cap companies have delivered tremendous returns over the past five years and that cycle is showing signs of exhaustion. However, within this space, Franklin India Smaller Companies was and remains an outstanding fund.

Author
Neil Borate

Neil Borate is Deputy Editor, RupeeIQ. He can be contacted at neil@rupeeiq.com.