The markets have been volatile over the past 18 months, even though key benchmark indices haven’t moved much over this period. Corporate earnings don’t seem to have increased across the board, though select pockets continue to deliver. With inflation persisting and interest rates staying high – though there are expectations of rates peaking in India at least – along with global economic uncertainties, value investing may work well over the long term, given the larger margin of safety it entails. Though such funds can underperform at times because value stocks do take time to play out after being recognised by the markets, the risk-reward is healthy over the long term.
Among funds in the value category, Bandhan (earlier IDFC) Sterling Value can be considered by investors with a medium risk appetite. The fund recently completed 15 years in existence and has been a consistent performer over the long term. Specifically, Bandhan Sterling Value’s performance has improved significantly over the past 4-5 years.
Here’s more on why the fund can be a good addition to investors’ portfolio for the long term.
Above-average performance
Bandhan Sterling Value has been a steady outperformer over the long term. Consider the rolling returns data from the period March 2013 to March 2023. On a five-year rolling return basis, the fund has delivered 14.1 per cent on average. This is higher than HDFC Capital Builder Value and Quantum Long-Term Equity.
Also, on a rolling five-year basis over the last ten years, the fund has beaten its benchmark – S&P BSE 500 TRI – nearly 65 per cent of the times. The S&P BSE 500 has delivered 12.7 per cent on average over this period.
Even from a point-to-point returns basis (as of March 28), Bandhan Sterling Value’s performance places over 3-5-7-10-year timeframes place it among the top quartile or one-third of the funds in the value category. In the last three years, it has delivered a healthy 45.6 per cent returns.
When returns from systematic investment plans in Bandhan Sterling Value are taken over a 10-year period, the scheme has delivered about 16.1 per cent. This return is among the best in its category.
A muti-cap approach
The fund takes a multi-cap approach to its portfolio construction. Of course, it was heavily tilted toward mid and small-cap stocks 3-4 years ago. Between 2019 and early 2021, Bandhan Sterling Value had 80-85 per cent of the portfolio investments in mid and small-cap stocks.
In general, that is the space that has more chance of value picks, and this mid and small-cap allocation also helped the fund outperform in the strong rally from March 2020.
In the last 18 months, the fund has tempered allocations. And has steadily increased large-caps in the portfolio. It now has over 49 per cent allocation to large-cap stocks, making it a tad resilient in the current volatile markets.
Bandhan Sterling Value played the revival in the markets quite differently from many other funds. It invested heavily in heavily in auto ancillaries, banks and financials, and cement companies from late 2019 and early 2020. Then, in early 2021, the fund hiked exposure to consumer durables.
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As markets reached their peak and started correcting from late 2021 and early 2022, the fund once again upped stakes in banks. Exposure to pharma and software were increased in recent months as stocks in these segments corrected sharply in 2022.
The fund’s churning pattern is reflective of its value investing style – either buy at low valuations or after steep corrections.
Bandhan Sterling Value takes a very diffused approach to its portfolio with no stock accounting for even 5 per cent of the portfolio. Sector exposure, too, barring the top one or two segments, is usually in single-digit percentages. This becomes relevant, as the fund’s mid and small-cap tilt can get risky if it is too concentrated.
The fund can be a good addition to your long-term portfolio, with a view of 7-10 years at least. Exposure through the SIP route would be advisable for investors to ride out market volatility.