Templeton India Equity Income Fund: Invest

Investors looking to diversify their portfolio to include stocks outside the Indian market can consider taking exposure to Templeton India Equity Income Fund (TIEIF). The fund’s value-based investing approach with a focus on stocks with high dividend yield, overseas exposures to sectors that are under-represented in the domestic market and a fine performance track record underpin our recommendation.

The fund may, however, be best suited for conservative investors only, given its value investing philosophy. While this strategy may (as it has in the past) help it manoeuvre a falling or volatile market well, it may also keep the fund from joining in the momentum in a sustained rally. We therefore suggest phasing out exposure to the fund by way of SIPs.

Performance: Templeton Equity Income has beaten its benchmark, BSE-200 in the last one year as well as over longer time frames of two and three years. What’s more, it has also comfortably beaten the returns delivered by the Sensex over both one and three-year time windows – a feat not matched by many international funds.

Over the last three years, the fund has on a monthly rolling return basis beaten its benchmark six out of ten times. It has fared particularly well during periods of high volatility in the market in 2008, gaining more than the index during the rallies and losing less than it, during the corrective phases.

The fund’s mandate, which allows it to pick high dividend yield stocks from overseas markets, also gives it an added edge over similar domestic funds, since Indian markets per se proffer a limited universe of such stocks. However, the fund has underperformed domestic ‘dividend yield’ funds such as Birla Sun Life Dividend Yield and UTI Dividend Yield over the past year.

The latter’s taking to debt last year as also the fact that Indian market has been among the top performers in the rally so far may explain TIEIF’s lower returns.

Portfolio: Though the fund’s portfolio hasn’t really seen a lot of churn, it has seen periodical rebalancing.

The domestic component of the portfolio, which predominantly features large-cap stocks, has in the last year shifted weights across stocks such as Tata Chemicals, ONGC, Sesa Goa, Bharti Airtel and ICICI Bank.

The fund has select representation from stocks of the mid- and small-cap genres as well.

While it has a high exposure to financials, it has, in its latest portfolio, accorded the highest weights to fertilisers and oil and gas.

The overseas component, which is now down to 28 per cent from 31 per cent in March 2009, also has a fair sprinkling of different sectors, a good part of it being new additions.