Franklin India Bluechip Fund has not beaten the Nifty for the last 11 years!

Franklin India Bluechip Fund is the tenth oldest mutual fund in India open for subscription. It is currently rated one star by Value Research, A look at its journey over the years and what current investors should do

Published: November 6, 2019 at 12:33 pm

Franklin India Bluechip Fund was launched on Dec 1993. It is the tenth oldest mutual fund currently open for subscription. It is the go-to fund for any analyst who loves backtesting and you would have seen several articles about the fund here as well. It is shocking to learn that the fund currently has a one-star rating at Value Research. A look at its journey and what current investors should do.

The one-star rating signified poor performance over a 3-5 year trailing period compared to category peers. This is merely a motivation to look closely. What matters is the fund’s performance against a benchmark.

The fund had an AUM of nearly Rs. 9000 Crores in July 2017 and it has currently dropped to Rs. 6581 Crores.  The NAV moved up only by about 0.2% during this period. So clearly investors have voted with their foot. The trailing return performance shown in the table is quite appalling.

Franklin India Bluechip Fund: Trailing Returns

Scheme NameNIFTY 50 – TRIFranklin India BluechipNIFTY 100 – TRI
1 Year14.84.913.5
2 Years8.2-0.26.7
3 Years13.76.813.1
4 Years12.17.012.0
5 Years8.86.79.2
6 Years12.811.113.4
7 Years12.510.813.1
8 Years12.110.312.6
9 Years8.77.98.9
10 Years11.010.511.4
11 Years14.814.415.5
12 Years7.48.17.9
13 Years10.510.511.0
14 Years13.413.513.8
15 Years14.715.115.0
16 Years14.816.015.4
17 Years17.620.1
18 Years16.519.8
19 Years14.217.4
20 Years13.017.3

As on 5th Nov 2019, Franklin Bluechip fund has not beaten the Nifty for the last 11 years! One can argue that the disparity in the movement of the NIfty and other indices (eg Nifty Next 50, Nifty Mid cap 150 and Nifty small cap 250) since Jan 2018 is a reason as shown in the image below.

Trailing returns of Nifty Indices as on Nov 5th 2019The counterargument is, other large cap funds have weathered this storm well and so should Franklin’s experienced CIO, Anand Radhakrishnan co-fund manager since Jan 2013.


Franklin Bluechip vs Axis Bluechip

One reason for the underperformance with respect to category topper Axis Bluechip – Reviewed here: Axis Bluechip Fund: Can this be used to beat Nifty?– is the large cap and mid cap allocation.

Large Cap Asset Allocation of Franklin Bluechip and Axis Bluechip Funds from Nov 2017 to Nov 2019The  Axis fund manager decreased midcap stock allocation right after it started falling. The Franklin fund manager increased allocation when it was falling and then decided to lower it.

Midcap Asset Allocation of Franklin Bluechip and Axis Bluechip Funds from Nov 2017 to Nov 2019The nature of the stocks and differences in sector allocation between the two funds would have made a bigger impact on returns. Two major differences one can spot by comparing sectoral allocation is, the Axis fund has had higher exposure to IT stocks (show below) and significant exposure to financial services stocks (other than banks). Both the IT and financial services indices moved up with little volatility in this period and have contributed to the returns of the Axis fund.

Allocation to IT stocks Franklin Bluechip vs Axis Bluechip FundsThe trailing return performance is not enough to pan a fund. Let us look at every possible 5,10 and 15 year periods in the fund’s past.

Franklin India Bluechip Fund Rolling Returns Graph over 5 yearsFranklin India Bluechip Fund Rolling Returns Graph over ten years showing the gradual disappearance of outperformanceFranklin India Bluechip Fund Rolling Returns Graph over 15 yearsNotice the dramatic drop in performance.

Summary

Franklin India Bluechip is one of the AMC’s flagship fund (along with prima and prima plus) and they would certainly be aware of this slip in performance and drop in AUM. This fund is practically unknown to the new generation of mutual fund investors who started a few years ago.

Languishing at the bottom of a category is a bigger problem than inability to beat the benchmark. Fund manager Anand Radhakrishnan certainly has the skill and experience to turn it around but cannot complain if existing investors lose patience and exit.

If you are an investor, you can switch to an aggressive-hybrid fund if you like downside protection (fund falls less than an index) or a Nifty 50/Sensex Index fund. Meanwhile, analysts like this author will watch this fund with keen interest.

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