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Sectoral Funds, Boon or Bane?

A few days ago, I was featured on a television programme on mutual funds, which had viewers calling in to get their MF portfolio-related queries addressed. There was a particularly interesting query from one gentleman whose portfolio comprised equivalent allocation to popular sectoral funds comprising FMCG Funds, Technology Funds and Healthcare Funds.

Just for the record, a sectoral fund is one that invests primarily in businesses that operate in a particular industry or sector of the economy. Before I share my response to the rather novel abovementioned query, let us cast a quick glance at some prominent funds in these categories.

In the FMCG space, Mirae Asset Great Consumer Fund has been a good performer. The scheme invests in a concentrated portfolio of high-conviction ideas comprising 35-40 stocks with the top 10 stocks forming about 40 per cent of the portfolio.

In the technology sector, the fund that catches the eye with steady performance is Tata Digital India Fund. A relatively conservative fund in its space, it has managed to ride the ups and downs in the sector pretty comfortably over the last three years.

The healthcare sector had taken quite a beating in the not too distant past and a lot of the till then hefty returns of the major funds in this space have been shaved off. Against such a backdrop, Reliance Pharma Fund seems a relatively better performer in the segment, where the jury is still out whether it is in recovery mode or there is still pain to be borne.

Clearly, there is no dearth of performers and survivors among sectoral funds. So, let us now return to the original question on how feasible it would be to build an MF portfolio by simply weighting (equally or otherwise) across sectoral funds.

For starters, if an investor is going to dictate sector allocation to the Asset Management Companies (AMCs), it must be assumed that the investor has as good, if not superior, capabilities as compared to the professional fund managers. In such a case, the investor can as well participate directly and even pick the stocks needed to match the allocation plan.

If the investor is not, and I know from close-to-three-decades of experience that very few investors are, it is better to seek professional advise and invest in a performing regular mutual fund scheme and leave it to the fund manager to draw the allocation canvas as per her or his reading of the market and the sectors therein.

Again, I have seen far too many investors who, against the grain of common sense and prudent investing, jumped onto the bandwagon of a ‘hot’ sectoral fund, only to bite the dust once the heat fizzled out. Personally, we prefer using sectoral funds only in fully constructed portfolios of investors with higher risk bearing capacity, as a top-up to try and skim some additional gains. – The New Indian Express

The author , Ashok Kumar, Business Head, LKW-INDIA



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