Last Updated on June 3, 2022 at 11:11 pm
This is a performance review of Franklin India Feeder – Franklin U.S. Opportunities Fund. This is an open-ended fund of fund scheme that invests a minimum 95% of its assets in the Franklin U.S. Opportunities Fund – I (acc) USD based in Luxemburg!
Before we consider the fund’s performance, we must understand the nature of the underlying fund – Franklin U.S. Opportunities Fund. The amount we invest in Rupees is converted into USD and invested in the US stock market via the underlying fund. The NAV of the fund of fund (feeder) is reported in INR.
What is the nature of Franklin U.S. Opportunities Fund? It is an actively managed fund investing in US growth stocks across market capitalization and sectors. MorningStar categorises this fund as “US Flex-Cap Equity”. Launched in Aug 2004 the fund has an AUM of $5.78 Billion as on July 31st 2020. Source: fund homepage
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Please note that this fund has several variants and the Franklin Feeder fund invests in “Franklin U.S. Opportunities Fund – I (acc) USD”. This has a total expense ratio (TER) of 0.85%. In addition, the feeder has a TER of 0.63% for the direct plan and atrocious 1.61% for the regular plan.
Thus the direct plan investor in the feeder fund is currently subject to a total TER of approximately 1.47-1.48%. This is three times as expensive as Motilal Oswal S&P 500 Index Fund (What return can I expect from this?). Readers may recall from our review of ICICI Prudential US Bluechip Equity Fund that it had a TER of 1.68%. The ICICI fund had difficulty in beating the S&P 500 but managed to fall lower.
What is the benchmark of Franklin U.S. Opportunities Fund? The fund is benchmarked to the Russell 3000 Growth Index. This is a subset of the Russell 3000 Index. While the S& P 500 represents the large cap segment of the US stock market (a good 80%), the Russel 3000 represents large, mid and small cap segments with 3000 stocks (98% of the market). Source: Presentation by BlackRock
The Russell 3000 Growth Index “measures the performance of the broad
growth segment of the US equity universe” and includes stocks from the base index (Russel 300) with “higher price-to-book ratios and higher forecasted growth
values”. Source: Fund factsheet.
As per the latest factsheet, the growth index has 1513 stocks with a 5-year EPG growth rate of 19.77 as opposed to 12.62 for the base index. A dividend yield of 0.86 (17.74 base index). A PE of 36.18 (24.97 base index). Total returns from the fund factsheet are tabulated below.
| Period | Russell 3000 Growth | Russell 3000 |
| 1Y | 28.24 | 10.93 |
| 3Y | 20.08 | 11.39 |
| 5Y | 16.18 | 10.89 |
| 10Y | 16.96 | 13.59 |
| 2015 | 5.09 | 0.48 |
| 2016 | 7.39 | 12.74 |
| 2017 | 29.59 | 21.13 |
| 2018 | -2.12 | -5.24 |
| 2019 | 35.85 | 31.02 |
| 2020 | 17.1 | 2.01 |
These are NAV-based total returns of two iShare ETFs based on the S&P 500 and Russel 3000.
| Duration | iShares Core S&P 500 ETF | iShares Russell 3000 ETF |
| 1y | 11.93 | 10.72 |
| 3y | 11.97 | 11.2 |
| 5y | 11.45 | 10.71 |
| 10y | 13.78 | 13.39 |
A more detailed comparison is not possible since daily total returns data could not be sourced. It probably a fair assumption that there is not much of a difference between the RUSSEL 300 and S&P 500 as both of them are market-cap weighted. The growth index may not beat the based index every year (see table) but has the potential to be more rewarding but with a little more volatility (see factsheet for standard deviation).
The Franklin U.S. Opportunities Fund is benchmarked to the growth index. This table of returns obtained from the AMC’s fund page shows that the fund has not been able to beat the benchmark over the last 5 and 10 years. The 2015-16 performance was particularly abysmal bringing to the fore the dangers of active management. These returns are as on 31st July 2020 in USD.
| Duration | I (acc) USD (%) | Russell 3000 Growth Index (%) |
| 1 YR | 30.68 | 28.24 |
| 3 YRS | 20.68 | 20.07 |
| 5 YRS | 14.3 | 16.17 |
| 10 YRS | 15.63 | 16.96 |
| 15 YRS | 11.51 | 11.32 |
| Since inception 31/08/2004 | 12.32 | 11.58 |
| JUL‑19 / JUL‑20 | 30.68 | 28.24 |
| JUL‑18 / JUL‑19 | 11.24 | 9.88 |
| JUL‑17 / JUL‑18 | 20.93 | 22.86 |
| JUL‑16 / JUL‑17 | 19.61 | 18.02 |
| JUL‑15 / JUL‑16 | -7.18 | 3.57 |
The top ten holdings of the fund contain many of the “usual suspects”. From FI Feeder factsheet.
The NAV movement of Franklin India Feeder – Franklin U.S. Opportunities Fund along with ICICI Pru US Bluechip Equity Fund(G)-Direct Plan and S and P 500 in INR from Jan 2013 is shown below.
Notice how both the ICICI and FI Feeder funds are unable to move above the S&P 500 in INR. Do not get too swayed by the recent up movement in the red line. This is also seen in the five year rolling returns below.
The FI feeder fund has a noticeably higher volatility than the S&P 500 INR index and the ICICI Bluechip funds as seen from the five-year rolling standard deviation plot below.
It is quite clear that the active funds struggle to beat the S&P 500. Therefore the S&P 500 index fund from Motilal Oswal appears to a better choice (for those who know how to manage a portfolio with US equity) than both ICICI US Bluechip Equity and Franklin India Feeder – Franklin U.S. Opportunities Fund. The only caveat is the tracking error of the index fund. We need some time to assess this.
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