Thematic funds, particularly infrastructure funds, may soon be losing their charm, say analysts monitoring the funds' performance in the last three years.
Infrastructure funds that were a big draw and showed outstanding gains between 2004 and 2008, are now disappointing investors. A thematic fund by definition invests predominantly in securities representing a particular investment strategy. “The reason why infra funds did exceptionally well in the pre-crisis period was because they were bullish on realty. Most of the infra funds focussed heavily on the realty sector which saw a 100 per cent increase in a single year. They had invested in all the ‘biggies'. Therefore, when the sector experienced a fall, the funds also followed suit.” says Mr Hiren Dhakan, Associate Fund Manager, Bonanza Portfolio Ltd. Over the last three years, these funds have given average annual returns of around 35-40 per cent; earlier their annualised average returns were about 67 per cent. Little interest seen As of May 2010, there were about 140 funds which invest in broadly 25 themes in India. Fifteen of them are infrastructure funds. “Infra funds are the only thematic funds which are of any meaningful scale. Other thematic funds such as Canara Robeco F.O.R.C.E Fund, DSP Blackrock Natural Resources and New Energy fund, Fortis Sustainable Development Fund do exist, but they are few and far in between and are not as big as the infra funds.” said Mr Dhirendra Kumar, CEO, Value Research. Even though the returns from infrastructure funds are higher than that from the other thematic funds, investors are fast losing confidence in them as the returns have been declining over the years. “The infra space has, of late, seen very little interest. There have not been many applications for these funds. ICICI, Tata, Birla Sun Life are some of the fund houseswhose infra funds have shown relatively good performance; but most of the other infra funds have not done well.” says Mr Dhakan. While some fund managers consider pharma and banking funds as thematic funds, analysts prefer to categorise them as sectoral funds, and not thematic funds. Post-March 2009, banking funds gave very high returns - annual average of 128 per cent, because of the “strong and supportive policies implemented by the Reserve Bank of India” according to a report on thematic funds by CRISIL. But the question whether these can be called thematic funds remains. “Infrastructure is a loosely defined category. In the BSE Sensex, almost 70 per cent of the stocks would fall in the category of infrastructure companies if we exclude IT, pharma and FMCG. Thus, thematic funds are different from sectoral funds. Which is why one cannot compare infra funds with banking funds or pharma funds, which are largely sectoral funds.” says Mr Dhirendra Kumar. Volatility high Thematic funds are known for their volatility as their investments are very narrow. Since the investment is focussed on only one sector, the risk is higher. In good times, it will translate into higher returns; but in bad times, it will lead to, possibly, even bigger losses. Therefore, thematic funds structurally attract investors who are aggressive and are exposed to higher risk. “Thematic funds are very aggressive and based on very precise themes. So, investors must keep this in mind and realise the high-risk factor. And if there really is an appetite for risk, then why can't investors go for mid-cap and small-cap funds? There, the investors will get a wider choice and also there is higher stability in the returns of these funds.” says Mr Dhakan According to analysts, one of the drawbacks of infrastructure funds is that they are only focussed on the construction and realty sectors. What they need to do is to diversify their portfolios into other infrastructure companies such as cement, utilities and energy.“If you are looking at long-term systematic returns, then investors need to diversify. Cement stocks, in particular, have a much lower beta and, therefore should do well.” concludes Mr Dhakan. *Safe Harbor Statement:* *Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints.* ** *Nothing in this article is, or should be construed as, investment advice.** * ** * * * * * * ** ** ** -- For Anything related with Stock market be Online at http://www.niftyviews.com/ Get free updates on your mobile phone. Sms "Join TSR " and send to 09223492234 FOR TRIAL STOCK/NIFTY/OPTION CALLS You received this message because you are subscribed to Google Group "STOCKRESEARCHER" group. To post to this group, send an email to [email protected] To unsubscribe email [email protected] for more info visit http://groups.google.com/group/STOCKRESEARCHER?hl=en-GB . This is Not a Spam Mail. 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