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Franklin India Bluechip Fund
Franklin India Bluechip Fund is a large-cap growth fund that was started in November 1993. Currently the fund has assets under management worth Rs. 5,293.36 crore (January 31, 2013).
Investment strategy
According to the scheme information document of the fund house, Franklin India Bluechip follows a blend of value and growth style of investing. Its stock-picking approach is bottom up. And it chooses companies with large market capitalization, as defined by the fund house, across sectors. The fund defines large market capitalisation as stocks with market cap higher than that of the hundredth stock in the CNX 500.
Fund performance
Year-to-date (Jan 31, 2013) the fund is up 16.82 per cent, ahead of its benchmark, the Sensex, by a margin of 111 basis points.
| Scheme Name | 1 Year | 3 Years | 5 Years | 10 Years | Since Inception | |||||||
| Franklin India Bluechip Fund(G) | 16.82 | 10.16 | 7.68 | 26.63 | 22.40 | |||||||
| BSE SENSEX | 15.71 | 6.72 | 2.42 | 19.84 | 9.83 | |||||||
January 31, 2012
The fund has also beaten its benchmark over the one-year, three-year, five-year and 10 year horizons. Since inception it has given a compounded annual return of 22.40 per cent, outperforming its benchmark by 12.57 percentage points over this time span.
Next, let us examine the fund's calendar year-wise performance to see if it has been consistent.
| Scheme Name | 2008 | 2009 | 2010 | 2011 | 2012 | |||||||
| Franklin India Bluechip Fund(G) | -48.07 | 81.32 | 22.96 | -18.25 | 26.79 | |||||||
| BSE Sensex | -52.48 | 76.35 | 17.43 | -24.64 | 25.70 | |||||||
All figures in %
Of the last five calendar years, the fund has beaten its benchmark in all years, each time by a margin of over 400 basis points, except in 2012. In 2012 it beat its benchmark by a margin of only 109 basis points.
The fund provided sound downside protection to its investors in the declining markets of both 2008 and 2011, by margins of 441 basis points in 2008 and 640 basis points in 2011.
Portfolio characteristics
Number of equity holdings. The fund currently holds 40 stocks in its portfolio (January 31, 2013). This is marginally less than the median for the diversified-equity category, which currently stands at 41.
Over the past five years, the fund has always had a diversified portfolio with the number of equity holdings averaging 39.85.
Sector concentration. The fund's portfolio is slightly more concentrated across the top three, five and 10 sectors against the median of the diversified-equity category.
| Sector Holdings | Top 3 | Top 5 | Top 10 | |||||
| Franklin India Bluechip Fund(G) | 39.03 | 52.64 | 73.13 | |||||
| Median - Equity Diversified | 34.30 | 47.59 | 68.53 | |||||
Company concentration. In case of company concentration as well, the same pattern is evident. The fund's concentration in the top three, five, and 10 stocks in its portfolio is slightly higher than the median for the diversified-equity category.
| Concentration-Company | Top 3 | Top 5 | Top 10 | |||||
| Franklin India Bluechip Fund(G) | 21.64 | 30.94 | 48.79 | |||||
| Median - Equity Diversified | 18.43 | 28.26 | 45.52 | |||||
Thus, the fund runs a slightly more concentrated portfolio compared to the median level for the diversified-equity category. .
Turnover ratio. According to its last disclosure (December 2012), the fund had a turnover ratio of 52.32 per cent. This was lower than the average of 73.87 per cent for the diversified-equity category during the same period. Its average turnover ratio during 2012 was 53.75.
The fund's turnover ratio tends to be on the lower side, which in our view is a positive.
Expense ratio. The fund has an expense ratio of 2.15 per cent, which is 24 basis points lower than the median for the diversified-equity category (2.39 per cent).
Cash allocation. The fund's cash allocation at the end of January 2013 was 9.08 per cent. It has had an average cash allocation of 7.31 per cent over the last five years. Its maximum allocation to cash over this period was 10.84 per cent in May 2011. In 2012 it had an average cash allocation of 7.60 per cent.
The level of cash in this fund is on the higher side. When a fund manager is fully invested in equities (and has a low cash allocation), that is a positive since a sudden upward movement in the market will not take the fund by surprise.
Risk measures. The fund's beta and standard deviation are both lower than the median for the diversified-equity category. These numbers indicate that this fund belongs to the less risky half of the diversified-equity category.
| Standard Deviation | Beta | |||||
| Franklin India Bluechip Fund(G) | 0.89 | 0.80 | ||||
| Median - diversified-equity funds | 0.94 | 0.81 | ||||
Risk-adjusted returns. On measures of risk-adjusted return such as Sharpe ratio and Treynor ratio, the fund fares better than the median for the diversified-equity category.
| Treynor | Sharpe | |||||
| Franklin India Bluechip Fund(G) | 0.04 | 0.04 | ||||
| Median - diversified-equity funds | 0.03 | 0.03 | ||||
Portfolio strategy
In the last one year (ending January 31, 2013) the BSE Sensex rose 15.71 per cent, the BSE Midcap Index rose 18.71 per cent and the BSE Small-cap Index rose 9.44 per cent. During this period the fund rose 16.82 per cent, and was ahead of its benchmark (Sensex) by 110 basis points
In the last one year the fund has had an average exposure of 90.19 per cent to large-cap stocks and 0.80 per cent to mid-cap stocks. Last year the fund's exposure to cash fluctuated between 10.07 per cent and 6.66 per cent. The average cash held in this period was 7.78 per cent.
The best-performing indexes in this period were BSE FMCG (45.34 per cent), BSE Consumer Durables (28.36 per cent), BSE Realty (31.06), BSE Bankex (28.00) and so on.
| Sector | February 2012 (%) | January 2013 (%) | Raised/lowered allocation (%age pts.) | |||||
| Bank - Private | 16.09 | 19.76 | 3.67 | |||||
| Consumer Food | 3.67 | 3.67 | ||||||
| Mining & Minerals | 2.01 | 4.59 | 2.58 | |||||
| Pharmaceuticals & Drugs | 6.66 | 8.83 | 2.17 | |||||
| Oil Exploration | 1.64 | 3.46 | 1.83 | |||||
| Diversified | 4.17 | 4.37 | 0.20 | |||||
| Refineries | 6.15 | 6.17 | 0.02 | |||||
| IT - Software | 11.48 | 10.43 | -1.05 | |||||
| Telecommunication - Service Provider | 9.70 | 7.44 | -2.26 | |||||
| Power Generation/Distribution | 7.74 | 4.40 | -3.33 | |||||
Over the last one year the fund has raised its allocation to sectors like private banks, consumer food, mining and minerals, pharmaceuticals & drugs and so on. Among its top 10 holdings, it has reduced its exposure to power generation/distribution, telecommunication and IT software.
| Sector Name | Fund (%) | Sensex (%) | Over/under weight vis-à-vis benchmark (%age pts.) | |||||
| Telecommunication - Service Provider | 7.44 | 2.57 | 4.87 | |||||
| Diversified | 4.37 | 4.37 | ||||||
| Bank – Private | 19.76 | 15.42 | 4.34 | |||||
| Pharmaceuticals & Drugs | 8.83 | 4.62 | 4.21 | |||||
| Consumer Food | 3.67 | 3.67 | ||||||
| Mining & Minerals | 4.59 | 1.31 | 3.28 | |||||
| Power Generation/Distribution | 4.40 | 2.43 | 1.97 | |||||
| Oil Exploration | 3.46 | 4.12 | -0.66 | |||||
| Refineries | 6.17 | 9.38 | -3.21 | |||||
| IT - Software | 10.43 | 14.59 | -4.16 | |||||
Figures are for January 2013
By the end of January 2013 the fund had a higher allocation vis-a-vis its benchmark to telecom services, diversified, private banks, pharmaceutical and drugs and so on. The sectors on which it was underweight vis-a-vis its benchmark were IT, refineries and oil exploration.
Next, let us turn to the fund's stock allocations.
| Sector | February 2012 (%) | January 2013 (%) | Raised/lowered allocation (%age pts.) | |||||
| Oil & Natural Gas Corpn. Ltd. | 1.64 | 3.46 | 1.83 | |||||
| Dr Reddy's Laboratories Ltd. | 2.71 | 4.20 | 1.49 | |||||
| ICICI Bank Ltd. | 5.94 | 7.09 | 1.14 | |||||
| IndusInd Bank Ltd. | 2.53 | 3.21 | 0.67 | |||||
| Coal India Ltd. | 2.01 | 2.60 | 0.60 | |||||
| Bharti Airtel Ltd. | 7.21 | 7.44 | 0.23 | |||||
| Grasim Industries Ltd. | 4.17 | 4.37 | 0.20 | |||||
| HDFC Bank Ltd. | 4.79 | 4.86 | 0.08 | |||||
| Reliance Industries Ltd. | 4.58 | 4.44 | -0.14 | |||||
| Infosys Ltd. | 8.16 | 7.11 | -1.05 | |||||
During 2012 the fund raised its allocation to stocks like ONGC, Dr Reddy's Laboratories, ICICI Bank and so on (see table above). Among its top 10 holdings it lowered its allocation to stocks like Infosys and Reliance Industries.
| Sector Name | Fund (%) | Sensex (%) | Over/under weight vis-à-vis benchmark (%age pts.) | |||||
| Bharti Airtel Ltd. | 7.44 | 2.57 | 4.87 | |||||
| Grasim Industries Ltd. | 4.37 | 4.37 | ||||||
| IndusInd Bank Ltd. | 3.21 | 3.21 | ||||||
| Dr Reddy's Laboratories Ltd. | 4.20 | 1.47 | 2.73 | |||||
| Coal India Ltd. | 2.60 | 1.31 | 1.29 | |||||
| Oil & Natural Gas Corpn. Ltd. | 3.46 | 4.12 | -0.66 | |||||
| ICICI Bank Ltd. | 7.09 | 7.83 | -0.74 | |||||
| Infosys Ltd. | 7.11 | 8.09 | -0.98 | |||||
| HDFC Bank Ltd. | 4.86 | 7.59 | -2.73 | |||||
| Reliance Industries Ltd. | 4.44 | 9.38 | -4.94 | |||||
January 2013
By the end of January 2013 the fund was overweight vis-a-vis its index on Bharti Airtel, Grasim Industries, Dr Reddy's Lab and so on. It also has a high exposure to Grasim Industries and IndusInd Bank that are not part of the benchmark index. Among its top 10 holdings, the fund was underweight vis-a-vis its benchmark on Reliance Industries, HDFC Bank, Infosys, ICICI Bank and ONGC.
Fund manager
The fund is co-managed by Anand Radhakrishnan and Anand Vasudevan.
Anand Radhakrishnan is a senior vice president, portfolio manager equities and head of portfolio analytics at Franklin Templeton Asset Management. Radhakrishnan also manages Franklin India Prima Plus, Franklin India Taxshield, Franklin India Infotech Fund, and equity portfolios of all hybrid funds. He is co-portfolio manager of Franklin India High Growth Companies Fund. Radhakrishnan has been in the investment management industry since 1994.
Anand Vasudevan is senior vice president and head of equity research at Franklin Templeton India AMC. He also has research responsibility for the Indian and ASEAN financial services sector. Vasudevan has been a securities analyst since 1997. Vasudevan manages one other fund, Franklin India Flexi Cap.
Conclusion
Franklin India Bluechip is primarily a large-cap growth fund that has performed across time horizons and also in each of the last five calendar years. The fund's high risk-adjusted returns offer a compelling case for investing in it. With its assets under management having grown quite large, there is a risk that the fund may not outperform by a large margin, especially in bull markets. However, taking into account its experienced management team and history, the fund should offer sound downside risk protection. Conservative investors may make this fund a part of their core portfolio.
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