2012 turned out to be a robust year for stocks. With key indexes gaining as much as 25% in the calendar year, several equity mutual funds played the rise well to add deliver decent alpha to their portfolios.
Here we look for equity mutual funds belonging to the large-cap and small- and mid-cap categories to short-list funds that outscored their peers. To emphasise the importance of not ignoring long-term performance, we also added another condition to our screening filter: we looked for funds with an overall Morningstar rating of four and above (that is, funds with above-average historical risk-adjusted returns). Only growth plans were screened and funds open only for institutions were not considered in the screening.
Here is a look at the top three funds from the large-cap and mid/small cap categories that emerged on our list.
Large-cap category:
Reliance Top 200
2012 return: 40.97%
The fund earlier had a history of taking major cash calls (its cash position stood over 20% toward the end of 2008), a strategy that helped it weather the financial-crisis meltdown better than others but the strategy also weighed on its performance during 2009’s swift rebound.
Having curbed the cash-call strategy, the fund came into 2012 after a sedate 2011 (when it landed in the third quartile) to make the most of last year’s rally.
The fund’s focus on quality high-growth stocks with an emphasis on healthcare, consumer-cyclical and financial-services stocks served it well during the year.
L&T India Special Situations
2012 return: 39.98%
Formerly run as Fidelity India Special Situations before the fund house’s takeover by L&T AMC, the fund has notched decent performances for several years in a row (it landed 20, 32, 15 and 32nd percentile category rank from 2008 to 2011, respectively).
The fund’s relatively larger mid-cap weightage and its focus on financial-services and healthcare stocks--both of which did well last year—stood it in good stead.
Reliance NRI Equity
2012 return: 39.28%
Another beneficiary of the consumer-cyclical, financial-services and healthcare stocks rally, the fund has historically tended to perform well in up-markets better than it fares in downturns.
The fund also tends to hold a fairly concentrated portfolio (it held 29 stocks as of December 2012) with the top 10 stocks weighing 47.5% of assets.
Small/Mid-cap category:
SBI Magnum Sector Umbrella Emerging Business
One-year return: 56.31%
The fund had a blowout performance, notching up gains of 56.31% in a year when the BSE 500 index was up 31.2% while the average fund in the Morningstar small/mid-cap category rose 39.04%.
The fund aggressively took large stock and sector bets where it saw opportunity (top holding SpiceJet jumped over 150% in the year) and its concentrated nature helped it trump the competition.
Reliance Equity Opportunities
One-year return: 47.35%
2012 was yet another solid year for the fund, which has logged top-quartile performances in five out of the last seven years.
Manager Sailesh Raj Bhan’s research-intensive focus lets him take bold sector calls and he does not mind going off the benchmark’s weights when he has the conviction. That the fund did well despite having a larger-than-category-average weightage to large-cap stocks is a testimony to the manager’s stock-selection skills.
ICICI Prudential Discovery
One-year return: 46.01%
The fund’s value-investing style where it scouts for beaten-down stocks generally trading at discounts to peers held up well for it, staying away from pricey consumer defensive and healthcare stocks.
Top performers for the fund include Amara Raja, which climbed about 200% through the year, and MindTree, ING Vysya Bank and Oracle Financial, which rose between 70% and 100%.