Personalfn's aversion to recommending new fund offers is a well-known fact. Over the years, we have consistently championed the cause of established and proven funds vis-a-vis NFOs. Our rationale is fairly simple. An NFO is an untested entity; conversely, investors have the option of investing in proven funds with established track records (across parameters and market phases).
Given that most NFOs have nothing truly 'new' (vis-a-vis existing funds) to offer in terms of an investment proposition, investors are better off, sticking to existing funds and giving NFOs a miss.
However, an NFO can be considered if its investment proposition is truly unique and suits the investor's risk profile. In other words, if the NFO's investment proposition is distinct from that of existing funds or if the existing funds fail to make the grade on the relevant risk-return parameters (among others), and the NFO holds the potential to deliver, it can be considered for investment. Simply put, the NFO should add value to investors' portfolios.
When equity markets were soaring over the last few years, virtually every fund house was busy launching NFOs. However, from the numerous NFOs launched, only a few made the grade on our parameters and were deemed invest-worthy. One such offering was Fidelity Equity Fund.
FEF's investment proposition
FEF was positioned as a diversified equity fund that would invest in stocks across the market (large caps, mid caps, small caps). And in terms of investment style, FEF was mandated to pursue a 'free-flowing' fund management style that would embrace varying investment styles/approaches like growth and value. To that end, the fund had the opportunity to explore investment opportunities across the market, without any impediment on the style (growth and value).
The fund was launched in March 2005 and had then mobilised an asset size of around Rs 15 bn (Rs 1,500 crores).
Why we recommended the NFO
Diversification was one of the key factors in FEF's favour. The fund offered investors an opportunity to diversify at the asset management company level, given that FEF was Fidelity Mutual Fund's maiden offering. Secondly, the aforementioned 'free-flowing' investment style made it a true-blue diversified equity fund.
Also, the exit loads on premature redemptions were an indicator of the AMC's thrust on long-term investments. At Personalfn, we have always maintained that equity investments should be made with an investment horizon of at least 3-5 years, given that equities as an asset class are best equipped to deliver over longer time frames.
Notwithstanding that it was Fidelity's maiden launch, we drew comfort from the fact it already had a research base on Indian companies, by virtue of its exposure to Indian stock markets for over 10 years, in the capacity of a Foreign Institutional Investor.
We thought now would be an interesting time to put FEF's performance under the scanner and find out how it has fared so far. Given its unique investment proposition, FEF doesn't have peers with strictly comparable investment styles. Hence, we have chosen funds that pursue a fluid investment style as its peers for comparison.
The face-off
| NAV (Rs) |
1-Mth (%) |
6-Mth (%) |
1-Yr (%) |
Since Incep. (%) |
Std. Dev. (%) |
Sharpe Ratio (%) | |
| Fidelity Equity (G) | 23.26 | -7.0 | 5.5 | 38.2 | 45.4 | 6.98 | 0.34 |
| Principal Resurgent IEF (G) | 83.10 | -6.3 | 9.7 | 37.4 | 34.6 | 6.37 | 0.34 |
| ICICI Pru. Dynamic (G) | 67.91 | -6.3 | 0.2 | 31.0 | 49.3 | 7.56 | 0.32 |
| Tata Equity Opportunities (A) | 62.67 | -9.0 | 4.2 | 29.8 | 13.3 | 8.25 | 0.26 |
| HSBC India Opportunities (G) | 28.79 | -9.1 | -0.6 | 24.3 | 36.0 | 7.50 | 0.30 |
| BSE 200 | -8.0 | 4.4 | 26.9 |
Over the 1-Yr time frame, FEF's net asset value has appreciated by 38.2% and it surfaces as the top performer in the peer group. Also, it has outperformed its benchmark index i.e. BSE 200 (26.9%) by a significant margin. Since inception, FEF has clocked a growth of 45.4% CAGR.
As can be seen in the graph above, Rs 100 invested in FEF on inception would be worth approximately Rs 235.5 at present, while an investment in the benchmark index i.e. BSE 200 would have returned Rs 206.0.
Risk and return
Standard Deviation (SD) indicates the ability of a fund in countering stock market volatility; simply put, SD highlights the element of risk associated with the fund. With an SD of 6.98%, the fund has pitched in a good performance vis-a-vis its peers; it is second only to Principal Resurgent IEF (6.37%).
Similarly, Sharpe Ratio is a measure of the returns offered by a fund per unit of risk borne. The fund has been equally competent on this parameter. FEF (0.34%) emerges as the top performer in the peer group along with Principal Resurgent IEF (0.34%)
It can be said that in its short history, FEF has performed reasonably well across parameters.
Then again...
It must be mentioned here, that these are early days for the fund. At Personalfn, we prefer to evaluate equity funds over at least a 3-5 Yr time frame; this is necessary given that equities are essentially long-term investment avenues. While over its limited existence, FEF has clocked an impressive showing, we would like to see it deliver consistently in a similar manner, going forward.
What should investors do?
Should investors consider investing in the fund? Well, that would depend on the investor's risk appetite, investment objective and existing portfolio, among a host of other factors.
At Personalfn, we have always maintained that a 'one size fits all' approach doesn't work while investing. An investment avenue that is apt for one investor could be grossly unsuitable for another. Investors would do well to consult their investment advisors/financial planners to determine the suitability of FEF in their portfolios.
By Personalfn.com
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