Morgan Stanley Growth Fund, which has been in operation for 17 years, has suffered from inconsistent performance, says Lahar Bhasin. Your investors are better off switching to an index fund rather than staying invested here
Morgan Stanley Growth fund is a large cap focused, growth oriented fund. The portfolio has been positioned to enable investors to tide over volatile market conditions by benefitting from the size and strength of large cap stocks. After being close-ended for 15 years, the fund turned open-ended two years back. Most distributors and investors would remember this fund for the arbitrage opportunities that it offered during its listed tenure as a close-ended fund.
Inconsistent Performance
Morgan Stanley Growth fund through its long tenure has had its share of ups and downs. The fund has been around for 17 years and its return trail can be best described as inconsistent. A review of the returns over the past five years doesn’t offer much encouragement either, for the trailing five years the fund has lagged its benchmark. A comparison between the returns of the fund since inception viz. of its benchmark, BSE 100 for the same time period, shows that over the very long period the fund has outperformed its benchmark. However, this has been on the back of phases of outperformance in the past, which may or may not be replicated in the future. The performance during the critical 2008 bear phase was also disappointing, with the fund losing more than its benchmark.
|
Period |
Morgan Stanley Growth Fund |
BSE 100 |
|
6 Month |
-12.50 |
-6.22 |
|
1 Year |
8.43 |
11.91 |
|
3 Year |
1.84 |
2.62 |
|
5 Year |
6.99 |
11.7 |
|
Inception |
10.85 |
|
|
Returns as on May 24, 2011. Returns less than 1 year are absolute, while greater than 1 year are annualised. | ||
|
Source: |
Morgan Stanley | |
Portfolio Characteristics
The portfolio suffered from over diversification in its early days. However, the portfolio looks more focused today and is more concentrated, relative to its peer set. As on March 2011, the top five holdings accounted for 36 per cent of the fund’s assets. The higher concentration of holdings has had an impact on the volatility in returns of the fund. As of now the fund is playing on the banking theme, followed by a significant allocation to software. Unlike most of its peers, the energy theme is not dominant in the portfolio, even though the fund sports a high 8 per cent allocation to Reliance Industries. Instead the fund management has preferred to remain overweight on the healthcare sector. The good news about the fund management strategy is its low portfolio turnover ratio. Another positive for the fund has been the consistency in the tenure of its fund managers. The current fund managers have been at the helm since 2004.
Opportunity to Re-shuffle
Ideally a fund with a large cap focus and a long history would be a contender for a recommendation as a core holding. However, the inconsistency in returns displayed by the fund is a concern. Moreover, a conservative investor would be willing to concede low returns, provided the fund scores high on risk-adjusted returns. However, here too the volatility in returns does not justify a sacrifice on the return front. It is difficult to find a rationale for including this fund in one’s recommendation list. Your investors would be better off switching to an index fund rather than staying invested here.
