In the backdrop of rising influence of a few index heavyweights on the performance of benchmark indices, focused funds tend to offer lower risk since they can take bets to avoid index polarisation. In addition, their performance has been superior to large cap funds.
AMFI has started reporting category based fund inflows since April 2019. In the past four months, the focused funds attracted net inflows of Rs 2,264 crore, which was about one-fourth of the total equity inflows and just Rs 404 crore lower than the inflow in the large cap funds. The asset under management (AUM) of the focused funds rose by 31% to Rs 51,142 crore since March 2020, accounting for 7% of the total industry equity AUM.
The one-year return of the focused funds having more than Rs 500 crore of AUM outperformed the large cap funds by 3.6%. Out of the 14 focused funds having AUM more than Rs 500 crore, eleven delivered positive returns in the past 12 months, while only 47% of the large funds were able to do so.
Index polarisation is a major catalyst to bring focused funds on the fore. For instance, the top 15 Nifty 50 stocks gained 42% while the remaining 35 stocks have lost 20% since January 2018.
In the case of focused funds, the stock selection is based on a bottom up approach to build a counter cyclical portfolio which is expected to do relatively well irrespective of the macro-economic cycle. The strategy plays an important role during times of high volatility.