Birla Sun Life GenNext's focus on consumption-driven sectors has worked in a downturn only. The fund needs some spark to make it an all-weather choice for Generation Next
BIRLA Sun Life GenNext, launched in July 2005, sounds quite exclusive in the heap of diversified equity schemes. The fund, however, is very much akin to Kotak Lifestyle and invests in companies which are expected to benefit from rising consumerism in India. The success of these funds usually hinges on the high disposable income in the hands of the India's young generation and what they do with their income. Hence the name – Generation Next (GenNext)
PERFORMANCE:
India has emerged as one of the world's fastest growing economy. However, consumption has played only a minor role in it. According to figures by CSO, GDP growth in the country has been largely led by unprecedented expansion in the investment space while the share of consumption in the economy has been on a decline. A few items in consumer basket like telecom services and personal transport have, however, shown a speedy growth. The story, now, has a slight twist lent by the fiscal stimulus and the sixth-pay commission, which have put more money in the hands of consumers. It now remains to be seen whether the recent revival in consumption related stocks turns out to be stable or just momentary.
PERFORMANCE:
India has emerged as one of the world's fastest growing economy. However, consumption has played only a minor role in it. According to figures by CSO, GDP growth in the country has been largely led by unprecedented expansion in the investment space while the share of consumption in the economy has been on a decline. A few items in consumer basket like telecom services and personal transport have, however, shown a speedy growth. The story, now, has a slight twist lent by the fiscal stimulus and the sixth-pay commission, which have put more money in the hands of consumers. It now remains to be seen whether the recent revival in consumption related stocks turns out to be stable or just momentary.
Birla Sun Life GenNext, whose core investment philosophy is consumption, has so far delivered a commendable performance only in the downturn. In rallies, however, the performance is probably just about average. In 2006, for example, the fund managed to return just about 27% against the Sensex and the Nifty returns of about 47% and 40%, respectively. In 2007, while Birla Sun Life GenNext's 58% returns did outperform the Sensex and the Nifty returns of about 47% and 55%, respectively, it was placed far below the average of the other diversified equity schemes then.
In 2008 the fund did relatively better than most of its peers. The market meltdown that eroded the returns of the Sensex and the Nifty by about 52%, saw Birla Sun Life GenNext fall by about 48% in that year. The fund was, thus, successful in justifying its low beta of about 0.77. (A beat is a measure of volatility of a portfolio vis-à-vis the market as a whole. A beta less than 1 thus indicates that the portfolio is less volatile than the markets.) In the current calendar year, while the markets have seen a good run-up and the Sensex and the Nifty have returned about 77% and 73%, respectively, GenNext has returned only about 56% since January to date.
PORTFOLIO:
Given its consumption orientation, GenNext has an exposure of about 26% in consumer goods sector alone. Other prominent sectors in its portfolio include Media and Entertainment, Financial Services and Auto, among others. The fund has, however, restricted its stock holdings to an average of about 30 stocks at a point of time. Given the fund's small size of just about Rs 94 crore, this diversification by and large appears quite apt.
However, what surprises about GenNext is the proactive churning of its portfolio. Despite being heavy on sectors like consumer goods and media, that take time to realise earnings, a majority of the fund's current holdings are less than a year old.
Fortunately, for the fund, some of its picks rightly timed at the beginning of the rally have yielded decent returns. These include stocks like Marico, Yes Bank, Dabur, Bajaj Auto and HT Media among others. Vigorous returns by the media and entertainment sector in the last few months also explains the fund's fancy for this sector in recent times.
At the same time, some of its picks like Onmobile Global, S Kumars Nationwide and TV 18 are yet to yield returns. Most of these stocks are, however, recently acquired and it would be interesting to see if the fund manager would prefer to hold unto them till they recover cost or churn the portfolio in favour of some other picks.
OUR VIEW:
Despite its defensive strategy, Birla Sun Life GenNext needs some spark that can truly make it a fund apt for the Generation Next. Nonetheless, one cannot expect extraordinary returns from consumption-based funds in the short term, though they may yield good returns over a longer duration, provided they adopt a long-term investment strategy. Notwithstanding the fund's ability to curtail the risk in the downturn, investors have better options like Frontline Equity and Dividend Yield Plus to choose from the Birla Sun Life basket.
