Performance review: L&T India Value Fund, spread too thin, sees returns declineL&T India Value Fund is mandated to follow a ‘value strategy’. Although there is no universal definition, ‘value’ picking means finding relatively undiscovered stocks which have hidden potential. The fund benefits when the market discovers the potential of these stocks and their prices rise. L&T India Value Fund, an erstwhile superstar fund, has seen its performance drag with a 4.6% return over the past year. In this article, we look at whether the fund is actually delivering value.

L&T India Value Fund was launched in January 2010 (originally owned by Fidelity) and has delivered a solid 16.4% CAGR since inception. Its five-year returns have also surpassed its benchmark Nifty 200 TRI (Total Returns Index) by a wide margin of 25.1% to 16.1% on the index. Outperformance dropped over the past three years with the fund delivering 15.2% compared to 12.2% on the index. The fall turned into outright underperformance over the past year with the fund delivering a meagre 4.6% compared to an index return of 12.9%.   

Fund/Index 1 year 3 years 5 years Since Inception
L&T India Value 4.6% 15.2% 25.1% 16.4%
Nifty 200 TRI 12.9% 12.2% 16.1%

L&T India Value Fund’s portfolio shows a great deal of incoherence. It has a whopping 81 stocks in its portfolio. Its top holdings are Reliance Industries, L&T and HDFC in that order, none of which are commonly perceived to be ‘value stocks.’ About 65% of its assets are placed in large-cap companies leaving much of the real ‘value work’ to be done by just 35% of its assets.

The fund’s money is also spread widely over its holdings and the top 10 stocks account for only 26.6% of the portfolio. Its turnover ratio is also unusually high at 37%. The turnover ratio measures what proportion of the portfolio has been replaced over the past year. A 37% ratio means that more than a third of the portfolio has been replaced.  

Following the SEBI classification exercise, L&T Value Fund has been placed in the value fund category. However, SEBI has not defined what value investing is, letting the fund choose its own approach. In case of L&T Value Fund, it is difficult to pin down, what the approach is.

Venugopal Manghat has been the fund manager since November 2012 and Karan Desai since February 2017. Venugopal Manghat is the co-head of equities at L&T Mutual Fund. L&T India Value fund has an AUM (Assets under Management) of Rs 7,892 crore.   

Author
Neil Borate

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