Pare losses in infrastructure funds
Over the last five years, the infrastructure sector has been underperforming the broader markets consistently. The infrastructure-themed mutual funds have given average returns of 3.5 per cent. True, the Sensex and Nifty are not very far ahead, but they have gone up close to five per cent.
The gap of this underperformance has only widened. According to Value Research, in the last two years, infrastructure mutual funds have given negative returns of 10.6 per cent and the benchmark indices 1.5 per cent. Moreover, in the last one year, infrastructure has fallen close to 18 per cent and the Sensex and Nifty have fallen 11 per cent. It is only in the last two to three years that these have started underperforming by a large margin.
Srikanth Subramanian, research analyst with Morningstar, says any thematic fund, be it infrastructure or banking, should not form the core of one’s portfolio. “Infrastructure is not the kind of theme one can take a short-term view on. At least have a five- to seven-year time horizon," he notes. “This is because these projects are of long gestation period. Having said that, one cannot say infrastructure is a dead theme. It is a cyclical sector where the downside risk is high."
|Mutual fund scheme|| |
Returns in %
|Large and midcap||-8.70||-0.76||17.18||5.90|
|Data as on April 30, 2012 Source: Value Research|
This is a broad-based theme, which means, unlike a banking or a pharma sector fund (which have majority of investments in their respective sectors), infrastructure funds have a more liberal portfolio allocation. They can invest up to 80 per cent across sectors (other than information technology and pharma). “Since these are highly leveraged sectors, they have been able to recover fast, unlike pharma or IT which had a great run in the last two years," says Srikanth.
Going ahead, too, analysts are not too bullish on the infrastructure theme. So, what if you bought into the infrastructure story when it was one of the best performing sectors, and now are stuck with one of the worst performing schemes? Do you pare losses or keep holding on, as infrastructure is necessary for any economy to grow?
Infrastructure is an important sector, though the government is not spending as much as it should on it. This has hit the sector. Added to that the current economic slowdown is impacting it even more.
Financial planners advise investors to invest not more than 15 per cent of available funds to thematic funds. When the going was good, many retail investors had got carried away —and had taken huge exposure to this sector. As a result, they are now sitting with more than the required amount of exposure to the infrastructure theme.
Hemant Rustagi, chief executive officer, Wiseinvest, says if you have a high exposure (10-15 per cent), it would be worth looking at paring down your holding and going to a broad-based equity fund. The recovery in these funds are faster, he points out.
It makes sense to invest in an equity-diversified fund, as these will also have an exposure to infrastructure stocks. So, if you have a smaller portfolio and are building your corpus through systematic investment plans, it makes sense to correct your mistake if you have invested heavily in infrastructure themed mutual fund schemes.
It is not wise to have an exposure of around Rs 30,000-40,000 in a Rs 1-lakh mutual fund portfolio. So, these investors should switch to equity diversified funds. Over the last five years, this segment (large-cap and mid-cap equity diversified) have returned six per cent. In three years, these have given 17 per cent returns. However, in the last one year, these have given negative returns of 8.7 per cent, against a negative 18 per cent return on infrastructure funds.
Those with a reasonably bigger portfolio can have a good look at their investments, and realign their portfolio according to the kind of call they have on the sector.
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