SBI Focused Equity Fund: Winning with High Conviction Ideas

Apr 16, 2020

Listen to SBI Focused Equity Fund: Winning with High Conviction Ideas

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Industries across sectors have been reeling under the impact of the covid-19 pandemic. Some sectors could be more vulnerable to others and may find it more difficult to recover once the situation is normal.

If your mutual fund portfolio has high concentration to such sectors, it may have a negative impact on your overall returns. Likewise, your portfolio gains could be capped if the fund has low exposure to sectors expected to be least affected by the crisis.

However, since focused funds bet on high conviction ideas within various sectors across market capitalisation and take concentrated exposure in them, they may be well placed to withstand the volatility and benefit from the recovery.

SBI Focused Equity Fund (SFEF) is one such focused fund that has rewarded investors in the past through its high conviction bets.

Graph 1: Growth of Rs 10,000 if invested in SBI Focused Equity Fund 5 years ago

SFEF has rewarded investors in the past by generating superior returns over the benchmark S&P BSE 500 - TRI across various market cycles. If you had invested Rs 10,000 in SFEF 5 years ago on April 15, 2015, it would have grown to Rs 13,957 now (as calculated on April 15, 2020). This translates in compounded annualised growth rate of 6.9%. In comparison, a simultaneous investment of Rs 10,000 in its benchmark S&P BSE 500 - TRI would now be worth 10,867, a CAGR of 1.7%. Notably, most of the fund's alpha was generated during the large cap rally of 2019 and mid and small cap rally of 2017. The fund has performed well under its fund manager R Srinivasan who has been at the helm of this scheme since May 2009.

Graph 1
Data as on April 15, 2020
(Source: ACE MF)

Table: SBI Focused Equity 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 Focused 25 Fund 8,185 8.36 9.40 15.89 14.12 15.18 19.64 0.00
SBI Focused Equity Fund 7,012 10.36 9.36 13.87 13.50 15.15 18.86 0.01
Sundaram Select Focus 801 7.85 8.52 13.73 9.34 11.32 18.48 -0.04
IIFL Focused Equity Fund 665 17.09 9.57 13.14 11.28 NA 21.43 -0.01
JM Core 11 Fund 49 5.71 4.12 12.19 12.16 14.10 21.97 -0.07
Motilal Oswal Focused 25 Fund 988 8.21 5.27 11.38 11.37 NA 18.45 -0.07
IDFC Focused Equity Fund 1,077 -1.39 -0.03 11.33 8.34 10.57 20.86 -0.06
Principal Focused Multicap Fund 294 6.21 5.40 10.29 9.13 12.49 17.51 -0.05
Franklin India Focused Equity Fund 6,171 6.13 3.31 9.63 11.36 16.01 21.46 -0.10
Aditya Birla SL Focused Equity Fund 3,199 5.55 3.90 9.58 9.65 13.42 18.62 -0.10
S&P BSE 500 - TRI 2.05 3.48 10.09 8.78 11.00 19.72 -0.10
Returns are on a rolling basis and in %, calculated using Direct Plan - Growth option. Those depicted over 1-Yr are compounded annualised.
Data as on April 15, 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.

SFEF's superior return in the past couple of years has improved its overall performance across rolling time periods. The fund has outpaced the benchmark and category average with a noticeable margin across time frames.

As a result, the fund stands among the category toppers on 1-year to 7-year rolling return basis. Some of the other top performers in the category include Axis Focused 25 Fund, Sundaram Select Focus, and IIFL Focused Equity Fund.

This superior performance has come at relatively lower volatility. Moreover, its risk-adjusted returns is among the best in the category.

Investment strategy of SBI Focused Equity Fund

Being a focused fund, SBI Focused Equity Fund is mandated to limit the number of stocks in the portfolio to maximum 30. It can invest minimum 65% of its assets in equity and equity related instruments, while it has flexibility to invest up to 35% of its assets in debt and money market instruments. However, the fund has avoided investing in debt and money market instruments.

SFEF follows a multicap strategy with a large cap bias. As on March 31, 2020, the fund invested 55% of its assets in largecaps and around 30% in midcaps and smallcaps. The fund manager follows bottom-up stock picking approach to take high conviction bets in companies across market capitalisation and sectors.

Graph 2: Top portfolio holdings in SBI Focused Equity Fund

Graph 2 Graph 2
Holding in (%) as on March 31, 2020
(Source: ACE MF)

SFEF held a compact portfolio of 26 stocks as on March 31, 2020 diversified across various sectors. The top 10 stocks constitute 60.8% of its portfolio and include majorly some of the known large cap names like SBI, HDFC Bank, P&G Hygiene & Healthcare, Divi's laboratories, Bharti Airtel and Bajaj Finance. In the last one year it has increased its exposure to Alphabet Inc, an overseas equity, which now forms part of its top portfolio holding.

Stocks like Relaxo Footwears, Bharti Airtel, Fine Organic Industries, and Divi's Laboratories contributed the most to the fund's gain in the last one year. On the other hand, Bharat Heavy Electricals, HDFC Bank, SBI, Emami, Hatsun Agro, Bajaj Finance, etc. dragged down its gains.

In terms of sector, the fund has a high exposure to Banking and Finance. It also holds significant exposure in Consumption, Consumer Durables, Pharma, and Telecom, among others


SFEF has rewarded investors well in the past with superior risk-adjusted returns and has the potential to continue its winning performance in the future as well. While focused funds take utmost care to focus on high conviction ideas having high growth potential, if the fund manager's bets do not pay off as expected, investors may incur heavy losses due to high concentration of the portfolio. Therefore, Focused funds are a high-risk high-return investment. This makes SFEF suitable for aggressive investors with a long investment horizon.


Warm Regards,
Divya Grover
Research Analyst


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Editor's note: The last few years have not been among the best for equity mutual funds. While most funds have underperformed or are struggling to match the returns of the benchmark, there are few funds that have the potential to constantly generate alpha for its investors. And we have identified five such high alpha generating funds, in our latest report 'The Alpha Funds Report 2020'. Do not miss our latest research finding. Get your access to this exclusive report, right here!

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.



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.

'PersonalFN' is a service brand of QIS and was started in the year 1999. In 1999, the Company registered the Domain name for providing information on mutual funds and personal financial planning, financial markets in general, etc. and services related to financial planning and research in various financial instruments including mutual funds, insurance and fixed income products to customers. It offers asset allocation and researched investment recommendations through its financial planning services.

Quantum Information Services Private Limited (QIS) is registered as Investment Adviser under SEBI (Investment Adviser) Regulations, 2013 and having Registration No.: INA000000680. In terms of the second proviso to Regulation 3 (1) of SEBI (Research Analysts) Regulations, 2014 the Company is not required to obtain Certificate of registration from SEBI.

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There are no outstanding litigations against the Company, its subsidiaries and its Directors.

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Details of associates

  1. Money Simplified Services Private Limited;

  2. PersonalFN Insurance Services India Private Limited;

  3. Equitymaster Agora Research Private Limited;

  4. Common Sense Living Private Limited;

  5. Quantum Advisors Private Limited;

  6. Quantum Asset Management Company Private Limited;

  7. India Private Limited;

  8. HelpYourNGO Foundation;

  9. Natural Streets for Performing Arts Foundation;

  10. Primary Real Estate Advisors Private Limited;

  11. HYNGO India Private Limited;

  12. Rahul Goel;

  13. I V Subramaniam.

Disclosure with regard to ownership and material conflicts of interest
  1. ‘subject company’ is a scheme on which a buy/sell/hold view or target price is given/changed in this Research Report;

  2. Neither QIS, it's Associates, Research Analyst or his/her relative have any financial interest in the subject Company; except for one of the research analyst holding units of SBI Focused Equity Fund;

  3. Neither QIS, it's Associates, Research Analyst or his/her relative have actual/beneficial ownership of one per cent or more securities of the subject Company, at the end of the month immediately preceding the date of publication of the research report;

  4. Neither QIS, it's Associates, Research Analyst or his/her relative has any other material conflict of interest at the time of publication of the research report except that QIS (PersonalFN) is, as per SEBI (Mutual Funds) Regulations 1996, an associate / group Company of Quantum Asset Management Company Private Limited and Trustees and Sponsor of Quantum Mutual Fund (QMF) and to that extent there may be conflict of interest while recommending any schemes of QMF. However, any such recommendation or reference made is based on the standard evaluation and selection process, which applies uniformly for all Mutual Fund Schemes. The payment of commission (upfront / annualized & trail), if any, for any Schemes by QMF to QIS (PersonalFN) is also at arm's length and as per prevailing market practices.

Disclosure with regard to receipt of Compensation
  1. Neither QIS nor it's Associates have received any compensation from the subject Company in the past twelve months;

  2. Neither QIS nor it's Associates have managed or co-managed public offering of securities for the subject Company;

  3. Neither QIS nor it's Associates have received any compensation for investment banking or merchant banking or brokerage services from the subject Company;

  4. Neither QIS nor it's Associates have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past twelve months.

  5. Neither QIS nor it's Associates have received any compensation or other benefits from the subject Company or third party in connection with the research report

General disclosure
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  2. QIS or the Research Analyst has not been engaged in market making activity for the subject Company.

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Subject Company means Mutual Fund Schemes

Quantum Information Services Private Limited CIN: U65990MH1989PTC054667 Regd. Office: 103, Regent Chambers, 1st Floor, Nariman Point, Mumbai - 400 021 Corp. Office: 103, Regent Chambers, 1st Floor, Nariman Point, Mumbai - 400 021. Website: Tel.: 022 61361200 Fax.: 022 61361222 SEBI-registered Investment Adviser. Registration No. INA000000680, SEBI (Investment Advisers) Regulation, 2013

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