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L&T Tax Advantage - earlier Fidelity Tax Advantage
Investors looking for large-cap oriented funds for tax-saving purpose can consider exposure to L&T Tax Advantage (earlier Fidelity Tax Advantage). This fund had a lack luster year in 2011, partly due to some of its sector exposures that had played out their time and perhaps as a result of change in management. These short-term hiccups are likely to end, what with the fund now coming under the tutelage of leading fund manager Soumendra Nath Lahiri.
S.N. Lahiri took over as Head of Equities in L&T Mutual about a quarter ago. He was earlier with Canara Robeco Asset Management.
You may find the fund's three-year annual return of 9.6 per cent mediocre, although higher than its benchmark BSE 200's return of 4.8 per cent. What you make need to take note of is its rolling three-year returns; in other words, what the fund delivered over any three-year time frames, irrespective of when you invested. Such return, at 14 per cent annually since inception, may give a better picture of its track record.
Suitability
L&T Tax Advantage has been a large-cap biased fund even while it was under the Fidelity basket. Its strategy has not changed post the Fidelity buyout by L&T Mutual. Its almost 80 per cent holding in large-cap stocks means that it may not deliver returns as high as some of the top funds in the category which have higher exposure to mid-cap stocks. It can also underperform in a momentum driven rally such as the one in 2012.
But if you are looking for tax-saving funds with limited risk and volatility then this fund will be a good choice but next only to Franklin India Taxshield.
As the fund has also just been taken over by the new manager, you will have to give some time for the fund to catch up on performance. Exposure to the fund can therefore be limited at this point.
Performance
L&T Tax Advantage scores as much as peers such as Religare Tax Plan and Canara Robeco Tax Saver on a risk adjusted basis (measured by sharpe ratio) over the last three years. It also comfortably beat its benchmark BSE 200 82 per cent of the times on a one-year rolling return (rolled daily) over the above period.
Interestingly, the fund has amongst the lowest standard deviation in the tax-saving fund category. That means, its returns do not swing far from its average. While this means its downside is limited (as seen in 2008 and 2011), its upside potential is also not very high.
In the last one year, the fund scored 2 percentage points below its benchmark. It did not also manage the kind of robust rally that many funds experienced. We believe this is a more temporary phenomenon. For one, the fund held on, a bit too long, to sectors that had already run out of steam.
It was a little late to prune exposure to sectors such as consumer non-durables as well as IT. It had high exposure to premium IT stocks that under performed in 2012. While the fund did reduce exposure to blue chip stocks in this segment, it still held them. The recent rally in stocks such as Infosys and TCS is likely to have benefited the portfolio.
The under performance could also have been caused to an extent, by change in fund house and the uncertainty surrounding such change in terms of managing the funds. In a recent call, the fund manager has stated that the fund has been pruning exposure to consumer non durables and has also been reducing weights to pharma. We believe these tweaks together with the experience that Lahiri brings may correct the minor setback it received.
Portfolio
L&T Tax Advantage has close to 80 per cent of its assets in large-cap stocks. But it does have some interesting mid-cap stocks as well. Max India, APL Apollo Tubes and Motherson Sumi Systems are some of its offbeat picks in this space that also delivered well. The fund is also likely to scout for stocks in segments such as media and retail that can benefit from regulatory development.
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