Will the value funds emerge out from the shadow of the growth investment theme, which has dominated the global market in the past decade. Seasoned market participants usually stay away from timing the major changes in trends but they keep themselves ready for such an outcome. As growth stocks advance from strength to strength, there is a continued growing divergence between growth and value style to the highest-ever level. This means beaten down value stocks are trading at record low valuations. At the same time, there is growing discomfort in growth stocks such as bluechips that have been recent outperformers. While there are no indications that the bull run in the growth theme is set to reverse, fund managers believe it is a good idea to shift a portion of the holding to the underperforming value themes. Many funds with a focus on valuations are holding stocks with low price to earnings (P/E) ratio of 9-15, less than half of Nifty’s 34.
Though these schemes have underperformed their benchmarks over the last few years, financial planners believe margin of safety is very high in such funds. These schemes are managed by verteren fund managers like Sankar Naren, Prashant Jain, and Anand Radhakrishnan who have seen multiple cycles over a period of time. Here are four such schemes they recommend.
ICICI Prudential India Opportunities Fund
AUM: Rs 2,394 crore
Fund managers: Roshan Chutkey and Shankar Naren
Fund PE: 8.81
Fund PB: 0.92
Returns : 1 year / 3 years : -8.48 / NA
Top 5 holdings: NTPC, Bharti Airtel, Hindalco, Sun Pharma, ONGC
Investors are eyeing deep value in the market and looking to invest in a set of companies currently not in favour could consider such a fund. The fund currently has the lowest PE amongst all equity funds in the industry. The fund manager follows a bottom up approach to stock picking and identifies companies special situations such as corporate restructuring, Government policy and/or regulatory changes or those going through temporary unique challenges. Having a high conviction concentrated portfolio, the top 10 stocks account for 60% of the portfolio. Though not a fund, for first-time investors, given the high volatility in such a strategy, wealth managers believe investors with an appetite for small and midcap funds could consider a lumpsum allocation at this time.
Quantum Long Term Equity Value Fund
AUM: Rs 705 crore
Fund manager: Atul Kumar and Nilesh Shetty
Fund PE: 15.25
Fund PB: 1.81
Returns : 1 year / 3 years : 0.93 /-0.32
Top 5 holdings: Infosys, HDFC, Wipro, HDFC Bank, Mahindra and Mahindra
A staunch stickler to the value style of investing, this 14 year old fund buys stocks whose valuations are at a discount to the long-term historical median of the stock. Financial planners recommend this to long term patient investors. The fund manager does not hesitate to hold cash and hence in rising markets where valuations are high, could tend to underperform its peers and benchmark. Absence of Reliance Industries from its portfolio has hurt performance in the short term.
HDFC Top 100 Fund
AUM: Rs 15,759 crore
Fund manager: Prashant Jain
Fund PE: 13.76
Fund PB: 1.56
Returns : 1 year / 3 years : -7.49 /0.33
Top 5 holdings: Infosys, HDFC, Reliance Industries, ICICI Bank, SBI
A large cap oriented fund with a 24-year track record the fund is currently positioned to play the economic recovery theme. The fund manager has been overweight on sectors where earnings are expected to bounce back faster and underweight on high PE sectors like FMCG. Investors in the fund have been hit in the recent past as it has underperformed with the economic recovery further delayed due to Covid-19. As the country unlocks its economic activities in various phases post Covid -19 and economic recovery picks up, this fund with a high PSU holding could benefit.
Templeton India Value Fund
AUM: Rs 394 crore
Fund manager: Anand Radhakrishnan and Lakshmikanth Reddy
Fund PE: 10.78
Fund PB: 1.31
Returns : 1 year / 3 years : -5.43 /-6.91
Top 5 holdings: ICICI Bank, SBI, HDFC bank, Infosys, Mahindra and Mahindra
A large cap oriented value fund, it is recommended only to long term patient investors with a 5 year time frame. The fund manager identifies stocks that appear to be trading at a discount to what estimations indicate as their projected future value which over time produces strong share return. A fund that follows a buy and hold strategy with very low churn. Currently, the fund is bullish on corporate banks, oil and gas and automobiles.