360 One Focused Equity Fund: Generating Stable Long-term Returns

360 ONE Focused Equity Fund is the erstwhile IIFL Focused Equity Fund. Launched in October 2014, this Focused Fund seeks to achieve long-term capital appreciation by investing in a concentrated portfolio of up to 30 high-conviction stock ideas. It follows a multi-cap investment strategy, emphasising large-cap stocks while retaining flexibility across market cap segments. The fund then takes focused positions in sectors expected to perform well, selecting growth-oriented companies with favourable risk-reward ratios while steering clear of value traps and fleeting trends. This disciplined approach enables the fund to benefit from structural trends while minimising risks associated with speculative bets.

360 ONE Focused Equity Fund experienced a strong start but faced challenges in 2017-2018 and 2022, during which it significantly underperformed its benchmark and category peers. However, the fund demonstrated resilience by making impressive recoveries on both occasions and now ranks among the top quartile performers in its category.

Over the past five years, 360 ONE Focused Equity Fund has delivered a CAGR of 22.6%, outperforming its benchmark BSE 500 - TRI, which registered a CAGR of 19.5%. An investment of Rs 10,000 in the fund five years ago would now be valued at Rs 27,721, compared to Rs 24,435 if invested in the benchmark. The fund's performance highlights its capability to deliver significant alpha across multiple market cycles. Moreover, the fund's large-cap bias provides stability to the portfolio, while its exposure to mid and small-cap stocks enhances the potential for higher returns.

360 ONE Focused Equity Fund has consistently delivered above-average returns for its investors across various time frames, despite occasional short-term underperformance. The fund faced challenges during 2017-2018 and again in 2022, but it demonstrated resilience by staging strong recoveries, ultimately rewarding long-term investors. Over rolling 1-year and 2-year periods, 360 ONE Focused Equity Fund has outperformed many of its peers while delivering market-beating returns, reinforcing its ability to navigate different market conditions effectively. Over extended periods of 3 years, 5 years, and 7 years, it has outperformed its benchmark by approximately 1.8 to 4.8 percentage points, highlighting its ability to generate alpha over time. Such consistent results reflect the fund's robust investment strategy and effective portfolio management.

While 360 ONE Focused Equity Fund has exhibited volatility in line with its benchmark and category average, its Sharpe ratio (0.19) is superior to that of the benchmark and is nearly in line with the category average. This demonstrates the fund's ability to deliver reasonable returns relative to the risks taken.

What is the investment strategy of 360 One Focused Equity Fund?

Classified under the Focused Funds category, 360 ONE Focused Equity Fund has a mandate to allocate a minimum of 65% of its assets in equities investing in a maximum of 30 stocks. Accordingly, the fund holds a compact portfolio of around 30 high-conviction stocks. The scheme endeavours to identify the sectors that are likely to do well in the medium term, based on the business cycle of the economy and take focused exposure to securities of companies in identified sectors. The sectors are actively monitored and changes are made to invest in sectors that will benefit from the current stage of the business cycle. 360 ONE Focused Equity Fund utilises a SCDV (Secular, Cyclical, Defensives and Value Trap) investment framework to identify high conviction stocks and determine its weightage in the portfolio:

S- Secular - Companies with consistent ROE & PAT growth > 15%

C- Cyclical - Companies with PAT growth > 15% but ROE < 15%

D- Defensive - Companies with ROE > 15% but PAT growth < 15%

V- Value Traps - Companies with both ROE & PAT growth < 15%

360 ONE Focused Equity Fund employs a bottom-up approach to pick stocks across market cap segments, with a predominant emphasis on large caps. Notably, it has maintained a low turnover ratio of approximately 20-40% in the past one year, signifying low churning in the portfolio.

Being a Focused Fund, 360 ONE Focused Equity Fund holds a concentrated portfolio of 25-30 high-conviction stock ideas. As of October 31, 2024, the fund held 30 stocks in its portfolio. Top large-cap names like HDFC Bank, ICICI Bank, Infosys, NTPC, and Tata Motors currently figure among the top holdings in the fund's portfolio. The top 10 stocks together account for 54% of its assets. Most of these stocks have been a part of its portfolio for over 2 years now. The fund has limited exposure in each mid and small-cap stock to under 5%.

360 ONE Focused Equity Fund has benefitted immensely from its holdings in Cummins India, Bharti Airtel, NTPC, ICICI Bank, L&T, and Tata Motors that contributed around 24% to its absolute gains in the last 2 years. SBI, HDFC Bank, Divi's Laboratories, and Infosys were among the other major contributors to its performance. Meanwhile, APL Apollo Tubes, Sumitomo Chemical India, CMS Infosystem, Cholamandalam Investment & Finance Company, Info Edge (India), Indus Towers, Sona BLW Precision Forgings, and Suven Pharmaceuticals are among the stocks that have grown significantly in value since the time the fund added them in the portfolio.

360 ONE Focused Equity Fund's portfolio is skewed towards stocks in the Banking and Financial sector that collectively form around 30% of its assets. It also held major allocation to Auto & Auto Ancillaries, Infotech, and Telecom that together form another 34% of its holdings. The other core sectors in its holdings are Engineering, Pharma, Power, Metals, and Chemicals among others. The fund's portfolio is fairly diversified across cyclical, defensive, and sensitive sectors.

Is 360 One Focused Equity Fund suitable for my investment goals and risk tolerance?

360 ONE Focused Equity Fund has established a solid performance track record over the years, consistently rewarding investors across various market phases. Its ability to navigate different market conditions and deliver superior performance sets it apart from many of its category peers. The fund has effectively managed downside risks during market downturns, outperforming both the benchmark and many of its peers. Additionally, during bull phases, it has demonstrated decent outperformance, often ranking among the top quartile performers in the Focused Fund category.

360 ONE Focused Equity Fund follows a benchmark-agnostic investment approach, with the fund manager employing a business cycle strategy to identify sectors with potential outperformance over the medium to long term. By taking concentrated exposures in these sectors, the fund aims to capitalize on opportunities while effectively managing market volatility. Mr Mayur Patel, who has been managing the fund for nearly 5 years, brings stability and expertise to the investment process. His experience in navigating market cycles contributes to the fund's consistent performance.

360 ONE Focused Equity Fund is suitable for investors seeking decent alpha through a focused portfolio of high-conviction stocks with a long-term investment horizon of at least 5 years.

Note:  This write up is for information purpose and does not constitute any kind of investment advice or a recommendation to Buy / Hold / Sell a fund. Returns mentioned herein are in no way a guarantee or promise of future returns. As an investor, you need to pick the right fund to meet your financial goals. If you are not sure about your risk appetite, do consult your investment consultant/advisor. Mutual Fund Investments are subject to market risks, read all scheme related documents carefully. Registration granted by SEBI, Membership of BASL and certification from NISM no way guarantee performance of the intermediary or provide any assurance of returns to investors.

The securities quoted are for illustration only and are not recommendatory.

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DIVYA GROVER is the co-editor for FundSelect, the flagship research service of PersonalFN. She is also the co-editor of DebtSelect. Divya is an avid reader which helps her in analysing industry trends and producing insightful articles for PersonalFN’s popular newsletter – Daily Wealth letter, read by over 1.5 lakh subscribers.
Divya joined PersonalFN in 2019 and has since then used stringent quantitative and qualitative parameters to analyse funds to provide honest and unbiased research to investors. She endeavours to enable investors to make an informed investment decision and thereby safeguard their wealth.

Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing.
This article is for information purposes only and is not meant to influence your investment decisions. It should not be treated as a mutual fund recommendation or advice to make an investment decision in the above-mentioned schemes.

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About the Company including business activity

Quantum Information Services Private Limited (QIS) was incorporated on December 19, 1989.

QIS was promoted by Mr Ajit Dayal with an objective of providing value-based information/views on news related to equity markets, the economy in general, sector analysis, budget review and various personal products and investments options available to the Public. It was the first company to start equity research on an institutional level.

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• Group Companies including:

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  2. PersonalFN Insurance Services India Private Limited;

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  5. Quantum Advisors Private Limited;

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  11. HYNGO India Private Limited;

• Directors of the Company - Suresh Lulla; I V Subramaniam, Murali Ananthan Krishnan and Rafiq Dossani

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Quantum Information Services Private Limited CIN: U65990MH1989PTC054667 Regd. & Corp. Office: 103, Regent Chambers, 1st Floor, Nariman Point, Mumbai - 400 021

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