- A diversified fund
- Maintains a large-cap exposure of about 68-75% of the portfolio
- Contains losses very well in correcting markets
- Delivers steady, market-beating returns over the long term
- Conservative, valuation-rooted investment style
- Moderate risk investors with a 5-year plus horizon
With a 1-year return of 18.7 per cent against the Nifty 500’s 23.9 per cent, Franklin India Prima Plus‘ recent performance may have cast some doubt on whether to invest or even hold the fund. However, a bout of underperformance in the shorter term is not new for Franklin Prima Plus. The fund is one which rewards very well over a 5-year and over period, by virtue of a buy-and-hold strategy, valuation consciousness, and conservative approach. It is a fund can deliver market-plus returns steadily over the long term; it will be neither a chart-topper nor a bottom-scraper.
Franklin Prima Plus, thus, is ideal for investors who do not wish to track performance constantly and want a simple fund that delivers market-beating returns to build wealth over the long-term. It suits any long-term portfolio, but especially for moderate risk investors.
Performance and strategy
Though it is a diversified fund, Franklin Prima Plus does not change its market cap allocations drastically across market cycles unlike those such as ICICI Prudential Value Discovery or Franklin India High Growth Companies. The fund tends to maintain a large-cap exposure of 68-75 per cent, with the rest in mid-caps. This restraint in terms of mid-cap allocations limits returns in bull markets.
Where the fund shines bright, is its performance in correcting and even sideways or directionless markets. In the rout of 2008, Franklin Prima Plus kept losses in check a good 5 percentage points better than the category average and a whopping 8 percentage points better than the Nifty 500. In 2011, when markets and the category lost 30 per cent and 27 per cent respectively, Franklin Prima Plus lost 19 per cent. In 2013, when markets largely went nowhere, the fund still returned two percentage points more than the Nifty 500 and the category average.
This ability to keep losses in check compensates for it undershooting peers during market upswings. Rolling 5-year returns over the past 10 years shows that Franklin Prima Plus delivered among the best return of 20.5 per cent, and clocked this return for the least volatility.
Franklin India Prima Plus looks for quality stocks generating returns higher than their cost of capital, but does not sacrifice valuations in this search for high-growth companies. It follows a buy-and-hold approach and sports a low portfolio churn – of the stocks in its portfolio currently, a third have been a part of it for over 5 years. The fund moves into cash at around 8-9 per cent of its portfolio when markets are peaking and moves almost entirely out of cash when markets are at the bottom.
This strategy helps the fund contain losses during correcting markets. But it also leads to underperformance relative to the category and benchmark – as it has in the past year. The fund did not go overboard on sectors that outperformed in 2016 or in the year to date, such as metals, NBFCs, or oil & gas given the limited comfort on valuations or high growth ability. The fund also held a good 7-8 per cent of its portfolio in pharmaceuticals, which it has not trimmed by much even now. In automobiles, it went for the more pressured two-wheeler and commercial vehicle companies than passenger carmakers.
In fact, Franklin Prima Plus undershot its benchmark about 20 per cent of the time when rolling 1-year returns daily since 2007. Since its inception in 1994, there is no 3-year period where it returned lower than the market. Its risk-adjusted returns, measured by Sharpe, are also well above category average. The shorter term bouts of volatility can be effectively utilised through SIP investing. A SIP of Rs 10,000 since inception in September 1994 (amounting to about Rs 27 lakh in total) would have landed you with about Rs 5.5 crore today. That’s an IRR of 22.2 per cent, against the benchmark’s 13.7 per cent.
Franklin Prima Plus holds a diffused portfolio with few stocks making up more than 5 per cent of the portfolio.
Banking is the top holding, made up almost entirely by private sector banks, save State Bank of India. Automobiles forms the next heaviest sector weight, with the fund adding to this over the past six months as prices corrected sharply in two-wheeler stocks such as Hero Motocorp and Bajaj Auto. Software is also a portfolio heavyweight, but the fund has been gradually bringing exposure down – the current 9 per cent holding is lower than the 11.3 per cent it was just six months ago.
The fund has otherwise maintained holding in most sectors, which is not surprising given its investment style. Including auto and ancillaries, a good quarter of the portfolio is in consumer-facing sectors and stocks such as durables, FMCG, retailing, and media. Sectors such as banking and cement, which together account for over a third of the portfolio are a play on both cyclical and consumption (through retail lending and housing). Up-and-coming infrastructure and potential GST beneficiary logistics also form a reasonable portion of the portfolio.
Anand Radhakrishnan, R Janikaraman, and Srikesh Nair (for foreign securities) are the fund’s long time managers. The fund’s AUM is Rs 11,106 crore.
FundsIndia’s Research team has, to the best of its ability, taken into account various factors – both quantitative measures and qualitative assessments, in an unbiased manner, while choosing the fund(s) mentioned above. However, they carry unknown risks and uncertainties linked to broad markets, as well as analysts’ expectations about future events. They should not, therefore, be the sole basis of investment decisions. To know how to read our weekly fund reviews, please click here.