Aditya Birla Sun Life Equity Fund Review: Can it replace a large cap fund?

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This week, let us have a look at Aditya Birla Sun Life Equity Fund (ABSL Equity), find out how consistently it has fared in terms of risk and reward against its benchmark and peers. This is a multicap fund with not much change due to the SEBI categorization rules. It explicitly stated its objective as an open-ended equity scheme investing across large cap, mid cap, small cap stocks. From March 2018, Aditya Birla Sun Life Special Situations
Fund was merged with this fund.

Before we begin, do not forget to watch my corporate presentation: Common sense approach to money management! (share with your team!). Also, yesterdays post: Worried about post-election market volatility? Reduce risk with these simple steps

The multicap space got interesting as more and more investors have begun to realize that large cap funds will have trouble beating Sensex, NIfty or Nifty 100 or Bse 100 going forward. So they are likely to move into this category looking for excess return. This can cause herding and sudden increase in AUM. So keep an eye out for that. Already Kotak Standard Multicap Fund (See Review: Too much AUM, too soon?) has almost 24 thousand crores in AUM, Can ABSL Equity Fund (they need to come up with a better name!) replace a large cap fund? This is a question asked by a reader and we shall consider this.

HDFC Equity ~ 22.5 thousand crores. It may not take long for Motital Oswals Multicap 35 and others to catch up. ABSL Equity is currently at the 5th spot at 11 thousand crores. The more distributor friendly the AMC, the faster the AUM would grow. It is important for direct investors to keep in mind that most of the AUM is “regular” (commission based). Trivia: HDFC Equity Direct AUM is highest among direct plans. See: Which are the most popular direct plan mutual funds?

Aditya Birla Sun Life Equity Fund Review: Can it replace a large cap fund?

Aditya Birla Sun Life Equity Fund: History

The fund was originally part of Alliance Capital Mutual Fund and got into trouble after the “dot com” crash by taking on excessive risk. You can see traces of this risk in the rolling risk graphs below. ABSL took over the AMC in 2004 and since then the fund has seen four fund manager changes (see Morning Star fund page). The current manager is Anil Shah  (since Oct 2012).

Aditya Birla Sun Life Equity Fund: History
Source: ABSL MF

Investment Strategy

The AMC claims that it will change large cap: mid cap: small cap weights according to market conditions, although it seems to have a large cap tilt. If you are considering this fund as a large cap fund, it is better to keep this mind and its portfolio history. If it increased mid, small cap allocation and gets its wrong, it can be dangerous.

Next, we shall move on comparing every possible 10 and 5-year return and risk (standard deviation) of ABSL  Equity with its benchmarks and peers. If you wish to understand the basics of how risk is calculated, you can watch this.

What is standard deviation? Measuring Investment Risk Part 1

Aditya Birla Sun Life Equity Fund vs BSE 200, Nifty 500

10-year rolling returns and risk

Aditya Birla Sun Life Equity Fund  vs indices: 10 year rolling returns and risk

5-year rolling returns and risk

ABSL Equity Fund  vs indices 5 year rolling returns and risk

Aditya Birla Sun Life Equity Fund vs Franklin Equity vs HDFC Equity(!)

10-year rolling returns and risk

ABSL Equity Fund  vs peers 10 year rolling returns and risk

5-year rolling returns and risk

ABSL Equity Fund  vs peers 5 year rolling returns and risk

Impression

ABSL Equity has a decent outperformance record against Nifty 500 and BSE 200. Like other funds, it too has trouble beating Nifty Large Midcap 250 over the long term. Do not immediately assume that this 250 stock index is better! Managing such an index would be troublesome because of this: Warning! Even “large cap” stocks are not liquid enough! Can you handle this? If we consider the fund against its peers (as old or older), one cannot see anything particularly special other than its better recent 5-year record.

Summary: Can ABSL Replace a Large Cap Fund?

Can we use any multicap fund as a large cap fund for that matter? We can answer this only on a case by case basis. The larger AUM funds would inevitably have a large cap tilt but they may change according to market conditions. HDFC Equity is generally quite volatile and I think should not be treated as a large cap replacement. The same seems to be true of ABSL Equity. The fund does not have spectacular downside protection (90% over 5Y. see Morningstar) and its volatility needs to be a bit lower than the indices. Franklin Prima Plus with its lower and consistent risk record could be considered as a large cap replacement provided it maintains the large cap bias as mentioned here: Franklin India Equity Fund (Prima Plus) Review: slipping performance? (see video below)

Do not forget to watch my corporate presentation: Common sense approach to money management! (share with your team!). Also, yesterdays post: Worried about post-election market volatility? Reduce risk with these simple steps

Check out these videos from our Youtube Channel

I hold hybrid mutual funds: should I still rebalance the portfolio?

How to rebalance your portfolio? A guide

Mutual Fund FMP Crisis Explained: What should investor do? What should SEBI do?

Franklin India Equity Fund (Prima Plus) Review: Will this work?

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About the Author M Pattabiraman author of freefincal.comM. Pattabiraman is the co-author of two books: You can be rich too with goal based investing and Gamechanger. “Pattu” as he is popularly known, publishes unbiased, promotion-free research, analysis and holistic money management advice. Freefincal serves more than one million readers a year with numbers based analysis on topical issues and has more than a 100 free calculators on different aspects of insurance and investment analysis, including a robo advisory template for use by beginners. Contact information: freefincal {at} Gmail {dot} com He conducts free money management sessions for corporates (see details below). Previous engagements include World Bank, RBI, BHEL, Asian Paints.

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