SBI Focused Equity Fund: Focusing On High Growth
Oct 11, 2019

Author: Divya Grover

(Image source: photo created by freepik

While most mutual funds typically hold anywhere between 50 -100 stocks in their portfolio for optimal diversification, the performance over a certain period is mainly driven by a select few stocks. On the contrary some funds have bucked this trend to focus on a limited number of high conviction stocks and hold them for long-term to maximise their returns.

SBI Focused Equity Fund is one such fund with a focused mandate of investing in maximum 30 stocks across market cap segment to appreciate wealth in the long-term. It aims to provide investors with opportunities of long-term capital appreciation by investing in a concentrated portfolio of equity and equity related instruments.

Launched in October 2004, the fund has a corpus of Rs 5,726 crore which makes it one of the largest funds in the category. Notably, SBI Focused Equity Fund was earlier known as SBI Emerging Businesses Fund with a mandate of investing in stocks of Mid and Small sized companies.

The fund is managed by Mr R. Srinivasan (since May 2009) who has over 26 years of experience in Indian equities.

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

Had you invested Rs 10,000 in SBI Focused Equity Fund five years back on October 09, 2014, it would have grown to Rs 18,228 by now (as calculated on October 09, 2019). This translates into compounded annualised growth rate of 12.76%. In comparison, a simultaneous investment of Rs 10,000 in its benchmark S&P BSE 500 - TRI would now be worth Rs 15,229 (a CAGR of 8.78%). As can be seen in the chart alongside, the fund has generated significant lead over its benchmark in the last five years.

Graph 2:  SBI Focused Equity Fund year-on-year performance

The year-on-year performance comparison of SBI Focused Equity Fund vis-à-vis its benchmark S&P BSE 500 - TRI shows that the fund outperformed the benchmark in 7 out of last 10 calendar years. Barring CY 2013, CY 2016 and CY 2018 the fund managed substantial lead over the benchmark across calendar years. In the current year, the fund has shown significant improvement in performance and has outpaced the benchmark by a noticeable margin

Table 1: SBI Focused Equity Fund performance vis-à-vis category peers

Scheme Name Corpus (Cr.) 1 year (%) 2 year (%) 3 year (%) 5 year (%) Std Dev Sharpe
Axis Focused 25 Fund 7,841 1.93 13.69 16.48 16.80 15.00 0.12
JM Core 11 Fund 50 0.42 9.32 16.08 16.62 17.44 0.05
SBI Focused Equity Fund 5,726 2.57 13.09 13.86 17.68 13.94 0.07
Sundaram Select Focus 973 5.02 13.03 13.82 12.10 11.99 0.12
IIFL Focused Equity Fund 258 4.62 8.89 13.34 NA 15.93 0.06
IDFC Focused Equity Fund 1,489 -8.85 8.41 13.12 11.35 15.29 0.04
Franklin India Focused Equity Fund 8,354 1.64 8.14 12.06 17.96 15.40 0.03
Motilal Oswal Focused 25 Fund 1,060 -0.29 7.39 11.88 14.66 13.55 0.05
Aditya Birla SL Focused Equity Fund 4,192 0.96 7.58 11.46 13.79 12.37 0.02
Principal Focused Multicap Fund 311 1.50 8.39 11.43 12.51 12.84 0.01
Nippon India Focused Equity Fund 3,917 -4.68 5.56 11.12 18.00 16.76 -0.03
ICICI Pru Focused Equity Fund 635 0.51 7.00 10.50 11.31 11.77 -0.05
Quant Focused Fund 4 -3.83 6.22 9.73 17.57 12.56 -0.02
DSP Focus Fund 1,895 -0.91 5.76 9.62 13.82 14.80 -0.01
HDFC Focused 30 Fund 454 -5.62 3.77 9.24 12.11 15.43 -0.02
S&P BSE 500 - TRI 0.15 9.33 12.48 12.67 13.42 0.03
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 October 09, 2019
(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.

SBI Focused Equity Fund outpaced the benchmark and average category returns with significant margin across rolling periods.

In fact, it stands among the top performers across rolling periods. Axis Focused 25 Fund, Sundaram Select Focus, JM Core 11 Fund, Nippon India Focused Equity Fund and Franklin India Focused Equity Fund are the other top performers in the category.

In terms of risk-return parameters, SBI Focused Equity Fund registered lower volatility as compared to most of its peers but slightly higher as compared to the benchmark. However, it has rewarded investors with decent risk-adjusted returns.

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.

The fund manager follows bottom-up stock picking approach to take high conviction bets in companies across market capitalisation and sectors. The fund's portfolio is now biased towards large caps along with significant allocation in mid and small caps.

Graph 3: SBI Focused Equity Fund portfolio allocation and market capitalisation trend

SBI Focused Equity Fund invests across market capitalisation with a large cap bias. The fund generally allocates around 50% of its holdings in large cap stocks while its allocation towards mid caps is in the range of 15-20%. The fund has gradually reduced its allocation in the highly volatile small caps from around 30% a year ago to around 15-20% at present. During this period the fund simultaneously increased its allocation towards more stable large caps. Balance of the fund's holdings is maintained in the form of cash equivalents.

Graph 4:  SBI Focused Equity Fund top portfolio holdings

Kotak Standard Multi-cap Fund Top Portfolio Holdings Kotak Standard Multi-cap Fund Top Portfolio Holdings
Holding (in %) as on September 30, 2019
(Source: ACE MF)

Categorized under focused fund, SBI Focused Equity Fund had a concentrated portfolio of 26 stocks as on September 30, 2019. The top 10 stocks constitute 55% of the total holdings and are diversified across various sectors. HDFC Bank tops the list with an allocation of 9%, followed by Procter & Gamble Hygiene & Healthcare at 7.6% and Axis Bank at 7.1%. Rest of the stocks in the top 10 holdings have allocation in the range of 4-5% each.

In terms of sector, the fund has its highest exposure to Banking at 25.2%, with another 8.5% in Finance. Consumption (16.6%) has the next highest allocation in the portfolio, followed by Engineering and Power with allocation of 7% and 6.2%, respectively. Consumer Durables, Pharmaceuticals and Telecom services are the other prominent sectors in the portfolio.

Top Contributors

Among the stocks in the portfolio, Kotak Mahindra Bank contributed the most to the fund's return in the last one year with a weighted return of 2.1%. Procter & Gamble Hygiene & Health Care, Fine Organic Industries, HDFC Bank and Elgi Equipments were the other top contributors to the portfolio gains.

On the other hand stocks like Sheela Foam, Indostar Capital Finance and Hatsun Agro Products eroded some of its gains in the last one year.

Suitability of SBI Focused Equity Fund

SBI Focused Equity Fund allocates majority of its portfolio in selected stocks diversified across market capitalisation and sectors. Its compact portfolio style allows the fund manager to take high conviction bets on stocks having potential to generate higher returns. However, the concentrated portfolio may lead to high volatility, if any of the selected stocks come under pressure. Such funds are suitable only for aggressive investors having tolerance to volatility and high risk appetite, along with an investment horizon of 5 years or more.

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.

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 recently identified five such high alpha generating funds, in our latest report 'The Alpha Funds Report 2019'. Do not miss our latest research finding. Get your access to this exclusive report, right here!


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.

Disciplinary history

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. Neither QIS, it's Associates, Research Analyst or his/her relative have any financial interest in the subject Company;

  2. 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;

  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
  1. The Research Analyst has not served as an officer, director or employee of the subject Company.

  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: 16 Jolly Maker Chambers II, 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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Oct 13, 2019

Good information.

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