Using Franklin Blue Chip & Franklin Prima Funds To Understand Risk vs Reward

Published: June 28, 2017 at 11:24 am

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Here are some examples of the risk and reward associated with equity mutual fund investing using the twenty year NAV history of Franklin Blue Chip Fund (a large cap fund) and Franklin India Prima Fund (mid, small-cap funds). I had compared these funds a few years back, but I think a re-visit will not hurt.

NAV data from 17th Dec 1993 and 23rd June 2017 was considered to compute rolling returns. In this interval, almost 800 20-year return computations are possible. Each blue dot and red dot in the picture below is a 20-year return.

Now, what I should I look at in this graph?

  • Shall I notice that Franklin Prima has pretty much always beat Franklin Blue Chip for all the 20-year interval considered and shift my equity portfolio to entirely mid/small-cap funds?
  • Or shall notice that all red and blue dots are above 15% and expect the same kind of return over the next 20 years?
  • Or should I look at the horizontal axis and realise, even though each fund has ~800+ 20Y returns data, the investment window is only from late 1993 to late 1997 – a mere five-year window. Is this enough data?

Now let us invert the stats: make the rolling return duration as 5 years and the investment window as 20 years. This produces a whopping ~4600 entries for each fund.

  • Should I now look at the increase in the spread of returns?  What was only ~5% for each fund over 20Y, has not become ~60-70% for each fund. The best quality about a rolling returns graph is its ability to display risk even though only returns are plotted.
  • There are those in the mutual fund industry who consider 2-3Y as “long-term”. If 5Y long-term? Do mutual funds beat 5Y fixed deposits or even savings bank accounts at all times?

What about 10Y rolling returns?

  • Can I now look at these 3200+ 10Y returns and assume that I can expect at least 10% in the next 10 years?
  • Can anything be inferred from the spread of about 30% for the large cap fund and about 40% for the mid-cap fund?

At this point, some of you maybe going, “there is a selection bias here”. Of there is a selection bias because not many actively managed funds have that long a history in India. I could repeat this with large and mid-cap indices. I can assure you that the results would be a lot more depressing.

Let us complete the rainbow with 15Y rolling data.

What return can I expect over 5Y, 10Y,15Y or 20Y from equity?

More importantly:

How exposure to equity should I have over 5Y, 10Y, 15Y or 20Y investment tenures?

If you wish to use the Excel file use to generate the above graphs,leave a comment.


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  1. Could you kindly share the Excel file used here… I found an earlier version – which has a limitation on the start date from which the data is available…

  2. Dear Pattu sir,

    Can you please elaborate a little more what did you try to convey. Asking since, I don’t want to miss any inference that you intended the readers to make.

  3. Not sure if my inference is correct. but it seems
    1.Long Term should be more than 10, 15 is good and 20 is more good
    2. If my goal is less than 10 Years then i would avoid high exposure to mid and small cap

    Pattu sir,
    let me know if these inferences are correct

  4. Is there a 2nd part Professor?

    Or do you mean to say

    1)Expect only 10% from Equity (you said this before)

    2)Large cap is enough and no need of Mid and Small caps if the investment tenure is for 15-20 years.

  5. Hello Pattu,
    Thanks once again for a great analysis and bringing risk factors out..Can you pls share the spreadsheet you used for comparison.. Also I noticed that data points end at 2013, is it because you are reusing your earlier graphs?

  6. But as this is Finance, my interpretation might give me losses, whereas your explanation might help us. So please explain, what we can perceive we will.

  7. Dear Pattu:
    Thank you for sharing the spreadsheet. (It took me a while to realize that Bluechip had replace the Benchmark in the spreadsheet).
    This is based on the data that was in the spreadsheet.
    I am going to keep my inferences restricted to the comparison between these two funds (large cap and mid cap+small cap), though there are some absolute responses that have been asked for.

    Never even think of comparing the 1 year rolling performance – The chances are almost 50/50 on which fund would outperform.
    Even a 5 Year period gives a 2/3 chance for Prima to outperform;
    Over a 10 Year period Prima has 8/9 chance of outperforming Bluechip; and thereafter the odds of outperforming becomes 19/20 only.
    So would consider Prima over Bluechip if I had 10 years or more.

    In the 10 year period and above – the min. return for Prima has been always better than Bluechip.

    Now when I look at the 1 year rolling return, I see an interesting trend in the peaks:
    Jan-99 – 215% (Prima)
    Jan-03 – 183%
    Mar-09 – 150%
    Mar-14 – 91%

    So, if this is the going forward trend, we are not going to see significant years of out-performance as we have seen (which means the returns are trending down).

    While I tried to look at the bottoms, they also seem to indicate that the -60% era is coming down (which may be good).

    A big SURPRISE Finding (I am using the 10 Year rolling return – since I zeroed in earlier that it could be the min. period to invest.)
    Since the first date was 17-12-93; I used the same DD-MM and the year as 93, 98, 2003
    The difference in the XIRR between Prima and Bluechip moved from 4.5% to 2.49% to 1.12%.
    Even the 12 Year rolling return showed a similar trend (but the number of data points came a little less).

    So, this means that there would hardly be any difference between the returns of Prima and Bluechip going forward? If yes, would I want to invest in Prima then?

    Let us assume for a minute, that you could get the best 10 year return (you were super smart or super lucky). Let’s see how the gap between the best of Prima and Bluechip shifts:
    12.81% to 4.29% to 1.59%.
    This one is even more sharper a drop and MORE SURPRISING to me.

    However the minimum rolling return difference is nearly stable!

    The next one is even MORE SURPRISING to me:

    The difference in the volatility factor for 10 years and I moved the first reference data as above was 0.14 to 0.02 to -0.06 (yes, negative). That means Bluechip has started to become more volatile than Prima!

    On the returns that I would be satisfied with:
    If I happen to hit the worst case scenario, in a 10 year period – I would try to wait for a couple of more years (either of the funds).
    With a 15 Year investment horizon – I would not be worried, even if I entered in the worst period (either of the funds).

    The average of 20 year rolling return is 21% for Prima and 17% for Bluechip. I would settle for even 80% of this going forward i.e. 17% and 13.5%. I would like to evaluate on a rolling 3 year basis – if I hit more than the above threshold, I would prefer to move the surplus to a safe zone.

    I actually have a different approach of how I would like to look for returns – that is for another day.

    A very long answer. But in summary:
    1. The gap between the two funds for a 10 year return is narrowing to 1%. So I would then ideally like to move towards Bluechip (large cap fund).
    2. OR Wait, the volatility is moving in the other way (the large cap is getting more volatile than the mid cap) when looking at a 10 year period. So why go for Bluechip. I would settle with Franklin Prima – lower volatility than Bluechip and a marginally higher return!

    1. 🙂 wow! But should not be surprised as it is coming from you. Those are some hard observations. Yes loss in long term “alpha” is a concern. I think from the point of view of reward and risk some healthy mix of both caps is necessary.

  8. Dear Pattu,
    I downloaded the calculator and changed the years to 23 & 24,”Rolling Returns” and “Normalized NAV movement” are not getting refreshed..I even tried to expand the hidden rows in input page to check for step 6, but that ends at step 3. Can you pls provide the sheet which you used.. the analysis and the Fund sheet gets updated and as I understand its for the fund selected in step 2.


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