Last Updated on December 29, 2021 at 4:51 pm
This is a performance review of Tata Equity PE Fund. We find out how consistently it has beat its benchmark and fares against peers in the category. Tata Equity PE fund is a value-oriented fund that tries to buy “good stocks at cheap valuations”.
To achieve this, the fund uses several quantitative and qualitative factors the most prominent advertised being the PE ratio. It will choose companies with twelve-month PE ratio lower than that of the Sensex and hold 70% of such assets.
Note that this PE comparison applies to only when choosing the stock. The portfolio at any given time could have stocks with a current PE (or current 12-month average) greater than that of the Sensex.
Tata Equity PE Fund Facts
The fund retains the flexibility to invest up to 70% of assets in growth stocks. It can also invest up to 20% in bonds. It shall also consider buying stocks with low PB ratio, low price to cash flow, low price by earnings multiple and high dividend yields among other parameters.
Join over 32,000 readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email! 🔥Enjoy massive discounts on our robo-advisory tool & courses! 🔥
Even if all other parameters are favorable, the fund will buy only if the rolling PE condition mentioned above is satisfied (applicable only at the time of buying). According to the funds one-pager, it has held about 70% of large cap stocks in the past year and rest in mid cap and small caps
Launched in May 2004, the fund now has an AUM of about 5,600 Crores. For a little more than 9 years after launch, the fund failed to beat Sensex TRI as seen below (screenshot from Value Research). This can be a troublesome feature with a value-oriented fund, especially one that has a strict algo-based selection like this one.
It has Sensex TRI as its benchmark (like Quantum Long Term Equity). A slightly broader benchmark like NSE 500 or BSE 500 may be a bit more appropriate. However, the NSE/BSE 500 returns will not different from Sensex or Nifty (although the risk will be lower) as we saw here: Warning! Nifty Next 50 is NOT a large cap index!
To address this issue we will compare the performance of Tata Equity PE fund with Nifty 500 Value 50 TRI Index to check if it will make a difference.
Tata Equity PE fund vs benchmarks
First let us compare the seven-year rolling return performance of Tata Equity PE fund with Nifty 5400, Nifty 500 Value 50 and Nifty Large Midcap 250 TRI. There 1200 7-year data points in each colored line. Tata PE fund has consistently managed to beat all indices over this period.
If we repeat the process with standard deviation instead of returns, we get a measure of risk. Notice how much more volatility the Nifty 500 Value 50 Index is.
Also if we repeat the return calculation over 5 years, we notice how difficult it is to be a quantitative value investor! I am referring to the Nifty 500 Value 50 index first, but also feel it applies to some extent to the Tata fund
Tata Equity PE Fund vs Peers
We choose Invesco Conta, Quantum Long Term, ICIC Value Discovery for the peer comparison over 5 and 7 years.
Over five years it is hard to spot a winner other than note that QLTE has had a poor run since mid-2016. It has the lowest volatility but that can be cold comfort.
Over seven years, Value Discovery has done even if you discount the stellar outperformance around 2015 as due low AUM (less than half of the current levels when the 5-year window ended in 2005 and much less in 2000 – the start of the window)
Summary
The problem with value-oriented funds is they can seriously test your patience and therefore should only be used for very long term goals. Tata Equity PE fund has a good record of outperformance wrt benchmarks and has managed to stay in the league of Value Discovery and Invesco Contra. Therefore it certainly is a good pick if you have necessary temperament and duration. QLTE is worrying though and it needs to come good soon.
Investors should be aware that the fund’s formulaic investment strategy can be problematic when there is a big bull run or when many stocks trade at lower PE than the Sensex. So this will have to part of a well-diversified portfolio.
🔥Enjoy massive discounts on our courses, robo-advisory tool and exclusive investor circle! 🔥& join our community of 5000+ users!
Use our Robo-advisory Tool for a start-to-finish financial plan! ⇐ More than 1,000 investors and advisors use this!
New Tool! => Track your mutual funds and stock investments with this Google Sheet!
We also publish monthly equity mutual funds, debt and hybrid mutual funds, index funds and ETF screeners and momentum, low-volatility stock screeners.
- Do you have a comment about the above article? Reach out to us on Twitter: @freefincal or @pattufreefincal
- Have a question? Subscribe to our newsletter using the form below.
- Hit 'reply' to any email from us! We do not offer personalized investment advice. We can write a detailed article without mentioning your name if you have a generic question.
Join over 32,000 readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email!
About The Author
Dr M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over ten years of experience publishing news analysis, research and financial product development. Connect with him via Twitter(X), Linkedin, or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free investment advice.Our flagship course! Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions! ⇐ More than 3,000 investors and advisors are part of our exclusive community! Get clarity on how to plan for your goals and achieve the necessary corpus no matter the market condition is!! Watch the first lecture for free! One-time payment! No recurring fees! Life-long access to videos! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.
Our new course! Increase your income by getting people to pay for your skills! ⇐ More than 700 salaried employees, entrepreneurs and financial advisors are part of our exclusive community! Learn how to get people to pay for your skills! Whether you are a professional or small business owner who wants more clients via online visibility or a salaried person wanting a side income or passive income, we will show you how to achieve this by showcasing your skills and building a community that trusts and pays you! (watch 1st lecture for free). One-time payment! No recurring fees! Life-long access to videos!
Our new book for kids: “Chinchu Gets a Superpower!” is now available!
Must-read book even for adults! This is something that every parent should teach their kids right from their young age. The importance of money management and decision making based on their wants and needs. Very nicely written in simple terms. - Arun.Buy the book: Chinchu gets a superpower for your child!
How to profit from content writing: Our new ebook is for those interested in getting side income via content writing. It is available at a 50% discount for Rs. 500 only!
Do you want to check if the market is overvalued or undervalued? Use our market valuation tool (it will work with any index!), or get the Tactical Buy/Sell timing tool!
We publish monthly mutual fund screeners and momentum, low-volatility stock screeners.
About freefincal & its content policy. Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on mutual funds, stocks, investing, retirement and personal finance developments. We do so without conflict of interest and bias. Follow us on Google News. Freefincal serves more than three million readers a year (5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified with credible and knowledgeable sources before publication. Freefincal does not publish paid articles, promotions, PR, satire or opinions without data. All opinions will be inferences backed by verifiable, reproducible evidence/data. Contact information: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)
Connect with us on social media
- Twitter @freefincal
- Subscribe to our YouTube Videos
- Posts feed via Feedburner.
Our publications
You Can Be Rich Too with Goal-Based Investing
Published by CNBC TV18, this book is meant to help you ask the right questions and seek the correct answers, and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now.Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want
This book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at a low cost! Get it or gift it to a young earner.Your Ultimate Guide to Travel
This is an in-depth dive into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, and how travelling slowly is better financially and psychologically, with links to the web pages and hand-holding at every step. Get the pdf for Rs 300 (instant download)