The targeted equity fund category has done quite well over the long term. Amid volatile market movements over the past few years, this category has overtaken the flexible-cap and large- and mid-cap fund segments. It has provided better returns over the past seven years on a rolling return basis.
Being large-cap oriented has generally helped the targeted funds to withstand market fluctuations. But many members of the category also generated robust returns as the broader indices rallied.
In this regard, the IIFL Focused Equity Fund has shown strong performance and is among the best in class by generating consistent returns over all time periods. He has done better than most of his peers and his reference over the long term. It follows a mix of value and momentum investing strategies, which has worked well for the program.
IIFL Focused Equity may be suitable for being in the middle part of your equity portfolio, if you have a medium risk appetite. Read on to learn more about why the fund can be a good addition to your portfolio if you can stick around for at least 7-10 years. The SIP path may be suitable for investing in the program.
On a rolling five-year basis, from January 2015 to October 2022, IIFL Focused Equity generated an average return of 16.3%, ahead of most funds in the category and among the best. SBI Focused Equity, of which we had writing in the context of mixed domestic and US investments, is the best of the category over this period, with returns of 16.5%. Also on a seven-year rolling basis, IIFL Focused Equity recorded a healthy 16.5%.
It managed to beat its benchmark – the S&P BSE 500 TRI – by 3 to 4 percentage points.
IIFL Focused is also consistent enough to beat its benchmark. On a rolling three-year basis for the past seven years, it has beaten the BSE 500 TRI more than 85% of the time. When a five-year rolling return trend is taken, the plan has stayed ahead of its benchmark 100% of the time.
On a point-by-point basis, the fund has been among the top few funds in its category over three, five and seven-year periods.
Even during the sharp February-March 2020 correction, IIFL Focused fell around 36.5%, largely in line with the decline in broader markets.
Mixed investment style
Focused funds follow a flexible investment style and hold stocks of all market capitalizations. The program takes a large-cap approach, with these stocks typically accounting for 61-69% of the portfolio in recent years. Mid-cap and small-cap stocks made up just over 10% each of total holdings. IIFL Focused has maintained the number of stocks in its portfolio at around 30 over all periods. It shifts to spot at 7-10% during volatile markets.
With the exception of the top 3 or 4 stocks, the portfolio includes companies that represent less than 5% each of the overall pie.
A mixed portfolio allowed the fund to participate in rallies and contain or align with the benchmark during corrections. One of the main changes the fund made after March 2020 is that it reduced mid-cap holdings in the portfolio from 23-24% to just over 10%.
In terms of sector participation, financial services companies have always held the top spot. But the other holdings were rotated based on a combination of strategies. In March 2020, the fund increased its holdings in pharmaceutical stocks after the onset of Covid-19, given that they were likely the beneficiaries of the pandemic. It was early to spot the rally in IT stocks as they took a beating a few years ago. In recent months, he has increased his investments in auto and auto component stocks as well as capital goods stocks. Both of these segments are expected to perform well as the domestic economy embarks on a growth path.