Value-oriented schemes lead return scorecard in Q1 of new financial year

At the end of June, value and contra funds managed Rs 48,764 crore of investor assets
Value-oriented funds have started to outperform other equity categories in recent months, after largely lagging behind over longer time-frames.  

In the first quarter of the current financial year, (April-June), value funds have delivered average returns of 21.41 per cent, outperforming large-, mid- and small-cap funds.

Fund managers say that value funds are looking attractive at the current juncture and offer an attractive risk-reward proposition to investors.

"Value as a strategy took a backseat for a long time, resulting in an ever-growing investor bias towards high-growth companies, regardless of valuation," said Daylynn Pinto, senior fund manager-equity, IDFC Asset Management Company.

"With a gradual revival in the economy along with low interest rates, higher liquidity and attractive valuations, we believe deep value companies are likely to show improvement in cash flows/earnings, which will provide alpha generation opportunities," he added. 

Advisors reckon that such funds should be part of an investor’s overall diversified strategy, and allocation should be calibrated according to risk-appetite and investment horizon.

“Value by definition indicates investing in stocks and sectors that are not being looked favourably by the markets. This definition doesn’t have a time-frame. The value can be realised in six months or three years, so investors need to be ready for periods when such funds will underperform for a long time,” said Amol Joshi, founder of Plan Rupee Investment Services.

“The recent spurt in performance should not be the sole criterion to buy into such funds. Given the volatility expected in the category, an investor should hold a long investment horizon of at least seven years," said Vidya Bala, co-founder of

At the end of June, value and contra funds managed Rs 48,764 crore of investor assets. The category is still relatively small as it accounts for 6.8 per cent of assets managed by equity-oriented schemes.

Experts point out that there can be times when such funds are unable to contain downside, unless the fund manager exits holdings in which valuations have seen a sharp run-up.

“Following a steep rally, some of the stocks move into the growth territory and when the markets correct, some of these holdings can come under pressure,” Bala said.

Advisors say investors should look at value funds, but as part of their overall diversification strategy. “Just like investors should make asset allocation between equity and debt, investors should consider a blend of growth and value strategies within their equity basket,” Joshi said.

“One cannot be overweight on any single style, as one doesn’t know when stock rotation or sector rotation will take place,” he added.

In 2019, value funds ended with gains of 2.39 per cent, performing more or less in-line with mid-cap funds and better than small-cap funds, which ended in the negative territory.

However, the category performance was below that of large-cap funds that saw gains of over ten per cent.

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