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Changes in Recommended Portfolios
February 11, 2011

Changes in Recommended Portfolios


Author : iFAST Research Team



Untitled Document         

The Fundsupermart.com Recommended Portfolios that were launched in February 2010 has undergone the first revamp on 4 February 2011. These portfolios normally undergo rebalancing whenever there is a change in our outlook on equity markets and every six months, when we review our list of Recommended Funds. The current revamp can be attributed to the change in our stance on equities from “Over-Weight” to “Neutral” and the list of new Recommended Funds that has come out on account of our review of the same.

Asset Allocation

When we introduced our Recommended Portfolios, we were overweight on equities because of positive macroeconomic factors and the expected strong corporate earnings and foreign inflows. However, since November 2010, we have become neutral on equities on account of certain risks - inflation concerns and the expectant rise in interest rates, which will consecutively have an impact on corporate earnings and growth. Additionally, the fear of FII outflows and the expensive valuations resulted in neutral rating on India. Hence, the new asset allocation patterns for our 7 Portfolios are outlined below:

Table 1: Allocations in the Old and Revised Portfolios

Old Portfolio
  Conservative Moderately Conservative Balanced Moderately Aggressive Aggressive Moderately Aggressive(Global) Aggressive(Global)
Bonds 80% 60% 40% 20% 100% 20% 0%
Equity 20% 40% 60% 80% 0% 52% 65%
Global Equity 0% 0% 0% 0% 0% 28% 35%
New Portfolio
  Conservative Moderately Conservative Balanced Moderately Aggressive Aggressive Moderately Aggressive (Global) Aggressive (Global)
Bonds 90% 70% 50% 30% 10% 30% 10%
Equity 10% 30% 50% 70% 90% 45% 60%
Global Equity 0% 0% 0% 0% 0% 25% 30%

Table 2: Portfolio Fund Allocation Changes

    Target Asset Allocation with effect from 4 February 2011
Asset Allocation Fund Name Conservative Moderately Conservative Balanced Moderately Aggressive Aggressive Moderately Aggressive(Global) Aggressive(Global)
DEBT
Liquid Funds Tata Liquid-RIP(G) - - - - - - -
Ultra Short Term Funds HDFC Cash Mgmt-TA-Reg(G) - - - - - - -
BNP Paribas Money Plus Fund(G) 10 10 5 5 - 5 -
Floating Rate Funds Birla SL FRF-LT(G) 15 10 10 10 - 10 -
HDFC FRF-LT(G) - - - - - - -
Canara Robeco FRF(G) 15 10 5 - - - -
Short Term Funds Reliance STF(G) 15 15 15 5 5 5 5
JM Short Term-Reg(G) 15 5 5 - - - -
Templeton India ST Income(G) 10 10 5 - - - -
Income Funds BNP Paribas Flexi Debt Fund(G) - - - - - - -
Birla SL Dynamic Bond-Ret(G) 10 10 5 5 - 5 -
Gilt Funds ICICI Pru Gilt-Invest(G) - - - 5 5 5 5
EQUITY
Large Cap funds HDFC Top 200(G) 5 10 15 10 10 10 10
DSPBR Top 100 Equity-Reg(G) - - - - - - -
ICICI Pru Focused Blue Chip Equity-Ret(G) - 10 10 - - - -
Franklin India Bluechip(G) - - 5 - - - -
Multicap Funds HDFC Equity(G) - - - 10 10 5 5
Fidelity Equity(G) - - - 5 5 5 5
UTI Oppor(G) - - - 5 5 5 5
Midcap & Small cap Funds Reliance Growth-Ret(G) - - - - - - -
Sundaram Select Midcap(G) - - - - - - -
HDFC Mid-Cap Oppor(G) - - 5 15 20 10 10
DSPBR Small & Mid Cap-Reg(G) - - 5 10 15 5 10
Contra Funds ICICI Pru Discovery(G) - - - - - - -
Dividend Yield Funds UTI Dividend Yield(G) 5 10 10 - - - -
Infrastructure Funds ICICI Pru Infrastructure(G) - - - 5 5 - 5
DSPBR India T.I.G.E.R-Reg(G) - - - - - - -
Banking & Financial funds Reliance Banking(G) - - - 10 10 5 5
Pharma Funds Reliance Pharma(G) - - - - 10 - 5
Global Funds Principal Global Opportunities(G) - - - - - 10 15
Sundaram Global Advt(G) - - - - - - -
Fidelity International Opp(G) - - - - - - -
Mirae Asset China Advantage-Reg(G) - - - - - 15 15

Revision in Fund Category allocation

Fixed Income

We maintain our view that interest rates are on an upward trajectory therefore,  our allocation to Floating Rate Funds would continue to remain the same in all portfolios. However, the  allocation to Short Term Funds has been significantly increased. On the other hand, the allocation to Liquid Funds has become NIL as Ultra Short Term Funds are more tax efficient. Dividend Distribution Tax on Liquid funds are taxed at 27.68%, vis-à-vis, Ultra Short Term Funds, which are taxed at 13.84%. Our allocation to long-term Income funds has either remained the same or has been reduced, while Gilt funds have been given a 5% allocation in our Moderately Aggressive and Aggressive (both Domestic and Global) Portfolios.

Equity

On the equity side, we have made changes in the broad categories. The allocation to Diversified Equity Funds in the portfolios has been replaced by Large-Cap and Multi-Cap Funds. In our Moderately Conservative Portfolio, we have moved out of the Mid-cap funds and the portfolio concentration now is in the Large-cap and Dividend Yield Funds. In addition, we have also moved out of Sector Funds in the Balanced Category. This is because, since the objective of the 3 portfolios is mainly to take on moderately less risks and achieve high returns, we thought it is appropriate to move out from highly volatile funds like the Midcap and Sector category.

However, in the Moderately Aggressive and Aggressive Portfolios (both Domestic and Global Portfolios), the allocation to Multicap Funds has been introduced and the allocation to Mid-cap funds has been increased as these investors are ready to take higher risk and are willing to accept the short-term volatility of the stock markets. In addition, Mid-cap funds are trading at a discount, hence fund managers will look for stocks in this space with attractive valuations.

Since we are bullish on the Pharma sector in 2011, we have introduced a fund from this category in the Aggressive Portfolios. Our allocation to the other 2 sectors remains the same as we continue to remain bullish on the Infrastructure and Banking space. Finally, we have completely moved out of Contra Funds as we are of the view that since they take contrarian bets, these funds might take a long time to deliver decent returns for the investors.

Changes in Funds included in the Portfolios

Our Recommend Funds have been reviewed and as per the new list, we had to remove some of the existing funds and replace them with new ones.

Table 3: New fund additions and old fund deletions
Changes in scheme 
Category Old New
Floating Rate Funds HDFC FRF-LT(G)  Canara Robeco FRF(G)
Short Term Funds - Templeton India ST Income
Ultra Short Term Funds HDFC Cash Mgmt-TA-Reg(G) BNP Paribas Money Plus Fund
Income Funds BNP Paribas Flexi Debt Fund(G) -
Gilt Funds - ICICI Pru Gilt-Invest(G)
Diversified Large cap DSPBR Top 100 Equity-Reg(G) ICICI Pru Focused Blue Chip Equity-Ret(G)
- Franklin India Bluechip(G)
Diversified Multi cap - Fidelity Equity(G)
- UTI Oppor(G)
Mid cap & Small cap funds Reliance Growth-Ret(G) HDFC Midcap Opportunity Fund
Sundaram Select Midcap(G) DSPBR Small & Mid Cap-Reg(G)
Pharma Funds - Reliance Pharma Fund
Global Funds Sundaram Global Advt(G) Mirae Asset China Advantage Fund
Fidelity International Opp(G)

Conclusion

The revamped portfolios are effective from February 2011 and our Portfolio Factsheet from February onwards will mirror the performance of revised allocation. We shall keep track of these portfolios on a continuous basis and will rebalance it only when our view on Equities/Recommended Funds changes.




iFAST and/or its content and research team’s licensed representatives may own or have positions in the mutual funds of any of the Asset Management Company mentioned or referred to in the article, and may from time to time add or dispose of, or be materially interested in any such. This article is not to be construed as an offer or solicitation for the subscription, purchase or sale of any mutual fund. No investment decision should be taken without first viewing a mutual fund's offer document/scheme additional information/scheme information document. Any advice herein is made on a general basis and does not take into account the specific investment objectives of the specific person or group of persons. Investors should seek for professional investment, tax, and legal advice before making an investment or any other decision. Past performance and any forecast is not necessarily indicative of the future or likely performance of the mutual fund. The value of mutual funds and the income from them may fall as well as rise. Opinions expressed herein are subject to change without notice. Please read our disclaimer in the website.

 


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