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Over the last one year, thematic funds have gained popularity among investors. In fact, with AUM of Rs.4.56 lakh crore as on September 2024, the category has emerged as the largest fund category in the MF industry by overtaking flexi cap funds and large cap funds.
In just 6 months, thematic funds received record net inflows of Rs.1 lakh crore.
In a session appropriately titled as CafeMutual Ki Adalat at Cafemutual Confluence 2024, Team Cafemutual lodged an investor interest’s litigation against fund houses to judge if thematic funds are just asset gathering vehicles or really creating wealth for investors.
To answer this question, team Cafemutual invited Gaurav Kochar, Fund Manager - Equity, Mirae Asset MF, Siddhant Chhabria, Research Analyst & Fund Manager, Mirae Asset MF, Vrijesh Kasera, Fund Manager - Equity, Mirae Asset MF. The panel was moderated by Nishant Patnaik, Associate Editor at Cafemutual.
Gaurav addressed the prevalent industry trend of launching thematic funds predominantly in bull markets. He noted that around 180 thematic schemes exist today, yet only 80 have a track record exceeding five years. He said that investor attraction towards thematic funds often surges during bull markets. However, he advised against viewing thematic funds as purely bull-market phenomena, saying that a strong, sustainable foundation is what matters.
When comparing thematic funds to other categories, a five-year analysis revealed that only 50% of thematic funds outperformed their benchmarks. In contrast, small-cap and mid-cap funds consistently outperformed, with more than 65% of these funds beating their respective benchmarks.
Vrijesh and Gaurav suggested that a longer-term perspective (10-15 years) often provides a more accurate measure of their performance. They stressed the need for investors to consider risk-adjusted returns rather than absolute performance alone.
Talking about entry and exit points for tactical allocation in thematic funds, Siddhant suggested that MFDs should evaluate the medium-term outlook of a theme, its current stage within the cycle (early, mid, or advanced) and potential earnings growth. Vrijesh suggested that MFDs should look at valuations before recommending thematic funds to their clients.
Gaurav provided insights into the banking and finance sector, which has underperformed other sectors in recent years. However, he cited strong fundamentals like robust credit growth and improved asset quality, suggesting a promising outlook for the sector.
Similarly, Vrijesh discussed the healthcare sector, particularly the government’s Jan Aushadhi Scheme and how its impact on larger pharmaceutical companies implies a relatively stable outlook for the healthcare sector overall.
Vrijesh also noted significant growth potential within the hospital industry due to increased healthcare awareness, especially following the COVID-19 pandemic.
Siddhant emphasized India’s favourable demographics and growing urbanization as additional tailwinds for the consumption sector, predicting strong future growth.
Each panelist concluded with their thematic investment preferences, with Gaurav favouring the BFSI sector due to its robust fundamentals and Siddhant leaning towards the consumption sector, highlighting discretionary spending as a structural growth driver. Vrijesh prefered healthcare and consumption for a three-year horizon.
