Value-ori­ented funds: Pa­tience pays

Even though the schemes have had a rough run re­cently, it’s worth stay­ing the course


Value-ori­ented schemes is one cat­e­gory of funds that has had a fairly rough run over the past cou­ple of years. Most value-ori­ented funds have un­der­per­formed their re­spec­tive bench­marks — mainly the BSE 500 TRI, Nifty 500 TRI and BSE 200 TRI — over one- and three-year time­frames. Funds in the cat­e­gory saw NAV ero­sions of 1.6-26.6 per cent over the past year.

Given that value-in­vest­ing gen­er­ally de­pends on go­ing down the mar­ket cap­i­tal­i­sa­tion curve, many schemes bet on mid- and small-caps to the tune of 50-60 per cent of their port­fo­lios, and have had to face the rough end of the mar­ket gy­ra­tions in the last year or so.

But, does that mean you should exit these schemes once and for all? Not nec­es­sar­ily.

Still worth bet­ting on?

The oft-re­peated state­ment that value gets cre­ated over longer time-frames in eq­uity cer­tainly holds true for value funds.

If the per­for­mances of at least 7-8 of the 12 funds with long-term track records are any­thing to go by, an in­vestor will­ing to wait for 5-10 years can de­rive an ad­di­tional 3-7 per­cent­age points more than the stan­dard bench­marks. Of course, there will be ex­tended pe­ri­ods of un­der­per­for­mance, given that most val­ue­ori­ented funds have sub­stan­tial mid- and even small-cap in­vest­ments, which are in­her­ently volatile. But when mar­kets do rally, the cap­i­tal ap­pre­ci­a­tion from qual­ity beaten-down stocks tends to be far higher than that for mo­men­tum picks.

Aditya Birla Sun Life Pure Value was the worst-per­form­ing scheme in the cat­e­gory; it fell over 26 per cent in the last one year. But de­spite such a steep fall, re­turns of the scheme over fiveto 10-year pe­ri­ods are 20-21 per cent, a good 5-6 per­cent­age points higher than the BSE 500 TRI or Nifty 500 TRI. The story is sim­i­lar for L&T Value.

ICICI Pru­den­tial Value Dis­cov­ery has a large-cap bias and un­der­per­formed in the last few years. But a look at its long-term re­turns sug­gest that in­vestors with the ap­petite to stick around for 7-10 years would have reaped rich re­turns.

Most funds in the cat­e­gory have a generic def­i­ni­tion of value in­vest­ment as ‘com­pa­nies trad­ing at lower than their fun­da­men­tal value’. How­ever, a cou­ple of them of­fer a bit more ex­pla­na­tion. Tata Eq­uity PE, for ex­am­ple, has a pol­icy of in­vest­ing 70 per cent of its port­fo­lio in stocks with price earn­ings mul­ti­ples lower than the Sen­sex’s on a rolling 12-month ba­sis. In­vesco In­dia Con­tra, as its name sug­gests, takes con­trar­ian bets, and also buys into stocks that are on the verge of a turn­around. These funds do tend to stick to such man­dates more of­ten than not.

Some schemes in the value cat­e­gory have not done well even over longer time-frames (UTI Value Op­por­tu­ni­ties and Tem­ple­ton In­dia Value). But most of the qual­ity names from the ones men­tioned ear­lier are cer­tainly worth latch­ing on to for the long term.

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