Mirae Asset Large Cap Fund: Managing Risk through Timely Bets

May 21, 2020

The AMFI data for the last few months shows that large cap funds have been attracting higher inflows as compared to riskier categories such as mid and small cap funds.

Large caps are better placed to handle economic shocks such as the one we are facing now as these companies have strong balance sheet and sustainable competitive advantage. These companies have the potential to lead economy recovery when things start to normalize.

Therefore, if the current market environment has made you wary of riskier categories like mid and small cap funds then it would be better to stick to a well-managed large cap fund.

Mirae Asset Large Cap Fund (MALCF) is one such popular fund in the large cap category known for its ability to appreciate capital while maintaining stability.

Graph 1: Growth of Rs 10,000 if invested in Mirae Asset Large Cap Fund 5 years ago

MALCF has not only delivered superior returns during market rallies but has also performed well in depressing conditions by limiting the downside. The fund aims to help investors gain from sector and stock specific opportunities, with a large cap biased portfolio. This has helped the fund deliver superior returns over the benchmark across various market cycles. Over the last 5 years, MALCF has appreciated at a CAGR of around 5.6%, as against 3.1% delivered by the current benchmark Nifty 100 – TRI index. This is an alpha of around 2.5 percentage points CAGR over the benchmark. The prudent investment strategies followed by the fund has earned it a tag of being a consistent performer that has rewarded long-term investors well across various period.

 
Graph 1
Data as on May 20, 2020
(Source: ACE MF)
 

Table: Mirae Asset Large Cap Fund's performance vis-a-vis category peers

Scheme Name Corpus (Cr.) 1 Year (%) 2 Year (%) 3 Year (%) 5 Year (%) 7 Year (%) Std Dev Sharpe
Axis Bluechip Fund 12,717 -8.81 1.46 8.30 7.88 11.96 16.63 0.05
Canara Rob Bluechip Equity Fund 418 -8.26 0.58 4.53 6.51 10.32 17.69 0.00
BNP Paribas Large Cap Fund 748 -11.00 -1.53 1.87 4.41 11.32 17.64 -0.04
Invesco India Largecap Fund 190 -16.01 -4.79 1.39 4.42 9.92 19.37 -0.04
JM Large Cap Fund 564 -9.21 -1.92 1.34 2.81 8.46 8.75 -0.14
LIC MF Large Cap Fund 306 -13.44 -2.82 1.15 3.19 8.89 17.91 -0.05
Edelweiss Large Cap Fund 165 -17.69 -5.97 1.00 3.16 8.94 19.27 -0.04
IDFC Large Cap Fund 412 -14.36 -4.85 0.92 3.65 7.42 19.00 -0.05
Mirae Asset Large Cap Fund 15,347 -20.50 -5.44 0.01 5.56 12.53 19.79 -0.04
UTI Mastershare(D)-Direct Plan 5,613 -17.31 -6.39 -0.38 2.53 8.34 18.66 -0.07
Category Average -18.31 -5.95 -0.86 3.19 8.70 19.27 -0.08
Nifty 100 - TRI -21.25 -0.43 3.07 -6.67 7.60 19.92 -0.06
Returns are point to point and in %, calculated using Direct Plan - Growth option. Those depicted over 1-Yr are compounded annualised.
Data as on May 20, 2020
(Source: ACE MF)
*Please note, this table only represents the best performing funds based solely on past returns and is NOT a recommendation. Mutual Fund investments are subject to market risks. Read all scheme related documents carefully. Past performance is not an indicator for future returns. The percentage returns shown are only for indicative purposes.

While MALCF has trailed the benchmark and many category peers over the shorter time horizon of 1 year to 3 year, over the longer horizon of 5 year and 7 year the fund has managed to generate noticeable lead.

The fund stands among the category toppers on a 5 year and 7 year returns basis. Axis Bluechip Fund, Canara Rob Bluechip Equity Fund and BNP Paribas Large Cap Fund are some of the other top performers in the category.

On the risk-return parameters while the fund registered volatility nearly in line with the benchmark and category average, its risk-adjusted returns as denoted by Sharpe is ahead of many of its peers.

Investment strategy Mirae Asset Large Cap Fund

Categorised as a large cap fund, MALCF is mandated to invest minimum 80% of its assets in equity and equity related instruments of large cap companies. The fund also seeks opportunities in mid cap space where it allocates around 10% of its assets. MALCF follows a combination of top down and bottom up approach to pick stocks. The fund endeavours to invest in companies which have a chance of benefiting from economic growth and structural changes happening in the country.

MALCF looks at business on various quantitative and qualitative parameters and gives high importance to quality and scalable business run by credible management. While picking stocks for the portfolio, the fund managers look for growth businesses available at reasonable valuations.

Graph 2: Top portfolio holdings in Mirae Asset Large Cap Fund

Graph 2 Graph 2
Holding in (%) as on April 30, 2020
(Source: ACE MF)

As of April 30, 2020, MALCF held a well-diversified portfolio of 55 stocks. It held major exposure in highly liquid large cap names like HDFC Bank, Reliance Industries, ICICI Bank, Infosys and TCS together accounting for around 36% of its assets. L&T, Axis Bank, ITC, Maruti Suzuki and SBI stood among the other top holdings in the fund's portfolio.

Stocks like Tata Consumer Products, Divi's Laboratories, Dabur India, HDFC Life Insurance, Info Edge (India), Ajanta Pharma, Reliance Industries, Bharti Airtel, Dr. Reddy's Laboratories, etc. contributed the most to the fund's gain in the last one year. On the other hand, Axis Bank, SBI, IndusInd Bank, ITC, L&T, HDFC Bank, etc. dragged down its gains.

In terms of sector, over one third of the fund's portfolio is currently skewed towards Banking and Finance stocks, followed by Petroleum Products, Consumption, Infotech, Pharma and Auto together accounting for another 40% of the portfolio. The remaining portion of the fund's portfolio is diversified across range of sectors like Engineering, Consumer Durables, and Power, among others.

Suitability

MALCF holds a well-diversified portfolio spread across stocks and sectors, which helps it to efficiently deal with market fluctuations. Its large-cap mandate further increases the stability of the portfolio. The funds ability to take timely sector bets helps it to not only benefit from the market rally but also tackle volatility and limit downside. MALCF has a track record of delivering superior risk-adjusted returns as compared to peers and benchmark. This makes MALCF suitable for long term investors with moderate risk appetite.

 

Warm Regards,
Divya Grover
Research Analyst

 

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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.

 

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