IDFC Premier Equity - INVEST:: Business Line

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The fund has considerably cut back on its exposure to FMCG stocks.

Investors building a long-term equity portfolio can consider adding IDFC Premier Equity to their core holding. The fund's five-year return of 17.5 per cent compounded annually places it right on top of the diversified fund category. This return is 15 percentage points higher than its benchmark — BSE 500. The equity fund category delivered 4.8 per cent annually over this period. The fund's ability to consistently beat its benchmark by a mile and also stay ahead of its peers makes it a good candidate for a core portfolio.

THE WAY FORWARD

This said, in the last three years, the fund rode the steadily outperforming consumer theme to deliver returns far superior to many of its peers. FMCG as a theme has been the top paying sector since the market meltdown in 2008. You may therefore wonder whether this scorching pace of performance can continue, especially if the performance of the consumer non-durable space loses steam.

However, the following strategies adopted by the fund suggest that this may not be too much of a concern. For one, with a fourth of its holding, on an average, in the consumer and consumer-related sectors until a year ago, the fund managed to deliver as much as the top FMCG fund over this period. Clearly, besides the FMCG sector rally, right stock picking in other sectors too has helped the fund stay ahead. The fund benefited well from some of its other sector picks such as Bosch, Fag Bearings, Bata India or Blue Dart Express.

Two, as valuation is one of the driving criteria for this scheme's stock moves, it has, over the last one year, steadily pared exposure to direct consumer plays. From about 27 per cent holding in consumer non-durables a year ago, the fund has now brought it down to about 10 per cent. Clearly, high valuations in some of the FMCG stocks have compelled the fund to cut back on holdings.

It, instead, holds proxy-consumer plays like Page Industries and Asian Paints and also bets on finance companies that provide leverage for consumers. Vehicle finance companies as well as gold finance companies are cases in point.

Three, the fund manager of this scheme, Mr Kenneth Andrade, has traditionally split his investment universe into two — those that feed into the consumer economy and those that aid the investment economy. Now, while the former theme has played for a good while, the fund manager has stated that it may yet take some time for the latter to start performing.

Until then, while the fund will continue to pick consumer plays that are not direct plays on FMCG, some cash will be kept handy to deploy in the investment economy universe when the opportunity opens up.

Nevertheless, investors will do well not to expect extraordinary returns of 37 per cent annually that the fund delivered in the last three years. A 20 per cent return over a 7-10-year period may be what you should factor in from this fund when planning your goals.

PERFORMANCE

It is perhaps its cash holding that has, to some extent, curtailed IDFC Premier's NAV fall to less than 3 per cent in the last one year. While its in benchmark lost 12 per cent, peers declined 10 per cent.

IDFC Premier has been among the most consistent performers when it comes to beating the benchmark. On a rolling return basis, the fund has outperformed its index 90 per cent of the times in the last four years.

Curtailing excessive flows by closing the scheme for lump sum investments periodically and accepting regular inflows only through the SIP route has helped the fund plan its deployment. The fund also does not shy away from large caps that offer opportunities. Its exposure to some large-cap cement stocks over the course of the last one year is an example. Such occasional large-cap picks will also help easier deployment of funds.

Investors will have to take the SIP route to invest in IDFC Premier Equity.