Tata Equity PE Fund Review: The steady performer

Published: June 17, 2019 at 12:20 pm

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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.

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

Tata Equity PE Fund Review: The steady performer

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.

Tata Equity PE fund first nine year performance

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.
Tata Equity PE fund vs benchmarks rolling returns

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.

Tata Equity PE fund vs benchmarks rolling risk

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 benchmarks rolling returns over five years

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.

Tata Equity PE fund vs category peers rolling returns over five years

Tata Equity PE fund vs category peers rolling standard deviation over five 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)

Tata Equity PE fund vs category peers rolling returns over seven years


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.

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