Introduction: The Battle of the Heavyweights
In the realm of small-cap equity funds, two contenders stand out: the Invesco India Smallcap Fund Direct Growth and the ITI Small Cap Fund Direct Growth. Both funds aim to capitalize on the growth potential of small-cap stocks, but they do so with different strategies and performance metrics. This blog post will provide a comprehensive head-to-head comparison to help investors make an informed decision based on their specific goals.
Performance Breakdown: Returns vs Risk
Rolling Returns
When examining the rolling returns, the Invesco India Smallcap Fund has demonstrated a more robust performance over various time frames. Over the past year, it achieved a return of 3.35%, compared to ITI's 1.16%. In the three-year period, Invesco again outperformed with a 22.59% return versus ITI's 23.26%. However, in the five-year span, Invesco leads with 20.91% compared to ITI's 17.02%.
Capital Protection During Market Crashes
In terms of capital protection, we look at the maximum drawdown, which indicates how much a fund has lost from its peak to its trough. Invesco's maximum drawdown over the past year was -15.11%, while ITI's was slightly worse at -15.34%. Over three years, Invesco again fared better with a drawdown of -23.41% compared to ITI's -24.17%. Notably, both funds did not report recovery days, indicating that they may not have fully recovered from their respective drawdowns within the observed periods.
Risk-Adjusted Performance
Analyzing risk-adjusted performance metrics, we find that Invesco has a Sharpe Ratio of 0.8472 and a Sortino Ratio of 0.9906, while ITI boasts a Sharpe Ratio of 0.8962 and a Sortino Ratio of 1.1251. This suggests that while ITI offers better downside risk protection, Invesco provides a more balanced risk-return profile. In terms of Alpha, Invesco's 5.9744 indicates it has outperformed its benchmark, but ITI's 6.5790 shows it has done so to a greater extent. Therefore, on a risk-adjusted basis, ITI appears to be the better compounder.
Portfolio Overlap & Sector Bets
Both funds share a 21.67% overlap in their holdings, indicating a significant commonality in their investment strategies. Notable overlapping companies include Karur Vysya Bank Ltd., ZF Commercial Vehicle Control Systems India Ltd., and Wockhardt Ltd..
Top 5 Sectors
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Invesco India Smallcap Fund:
- Healthcare: 21.77%
- Services: 21.26%
- Financial: 20.09%
- Construction: 7.11%
- Consumer Discretionary: 6.71%
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ITI Small Cap Fund:
- Financial: 18.37%
- Capital Goods: 14.57%
- Healthcare: 14.19%
- Services: 11.06%
- Automobile: 6.86%
Invesco's heavy allocation to Healthcare and Services sectors has likely contributed to its superior performance in the long term, especially given the growing demand in these areas. Conversely, ITI's focus on Capital Goods may have limited its growth potential compared to Invesco's more aggressive sector bets.
The Final Verdict: Which Should You Buy?
For aggressive investors seeking higher returns and willing to accept higher volatility, ITI Small Cap Fund Direct Growth may be the better choice due to its higher Alpha and Sortino Ratio, indicating better downside protection. However, for those looking for a more balanced approach with a slightly better long-term performance, Invesco India Smallcap Fund Direct Growth is a solid option.
Conservative investors might lean towards Invesco for its historical performance and lower maximum drawdown, while aggressive investors may prefer ITI for its potential for higher returns despite the associated risks. Ultimately, the choice depends on your risk tolerance and investment horizon.