It might appear late in the day to invest in an infrastructure-themed fund, with the category delivering 84 per cent returns in the last one year.
But an interest rate cycle clearly headed south helps debt-laden companies, the hallmark of the infrastructure sector, now.
Two, the thrust on improvement in manufacturing can spur the investment cycle, benefiting the engineering sector. Three, projections are that economic growth will accelerate over the coming years.
So, if it was the positive sentiment playing out that drove these stocks over the past year, a concrete pick-up in investments and clearing up of bottlenecks can see earnings for infrastructure companies finally revive over the next one year.
This can push stocks up further, though maybe not by the meteoric levels of the past year.
Investing in an infrastructure fund, it being a thematic sector fund, requires a higher risk appetite, to start with.
Several stocks in these sectors are mid- and small-caps, pegging the risk at a higher notch.
So, risk takers can allocate a small part of their portfolio to Franklin Build India, far and away the best of the funds investing in the ‘infrastructure’ theme.
Leading the pack Like most infrastructure funds, Franklin Build India doesn’t restrict portfolios to developers of ports, roads, railways and power plants, but invests in sectors such as telecom, auto ancillaries, engineering and banking as well.
But it scores over peers due to this more flexible mandate. The fund can invest in the ‘building blocks’ of the economy, which allows it to pick up sectors such as healthcare and agri-business.
The fund has also maintained cash and debt of around 9 per cent of the portfolio since 2012, having lost heavily in 2011 with its very high exposure to equity.
In the five-year period, the fund has returned 22 per cent against its benchmark CNX 500’s 11 per cent.
On a rolling return basis, the fund has beaten the benchmark an impressive 80 per cent of the time over the past five years. Peer funds, such as Birla Sun Life Infrastructure and DSP BR Tiger, have rolling returns of less than 30 per cent with respect to their benchmarks.
Sector moves In its current portfolio, Franklin Build India has an allocation of 27 per cent to the banking space, which it increased markedly in the past year. Holding has usually been below 20 per cent in earlier periods.
The fund added to manufacturing stocks such as SKF India, FAG Bearings and Timken India over the past year, which has served it well.
Engineering, automobiles and cement also have higher weights in the portfolio now, which can hold it in good stead in the coming months.