Introduction: The Battle of the Heavyweights
In the dynamic world 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 have carved a niche in the small-cap category, but which one should you choose for your investment portfolio? This comprehensive analysis will delve into their performance, risk metrics, sector allocations, and expense ratios to help you make an informed decision.
Performance Breakdown: Returns vs Risk
Rolling Returns
When it comes to rolling returns, both funds have shown strong performance, but with slight variations:
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Invesco India Smallcap Fund:
- 1-year rolling return: 19.78%
- 3-year rolling return: 26.23%
- 5-year rolling return: 23.33%
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ITI Small Cap Fund:
- 1-year rolling return: 17.03%
- 3-year rolling return: 26.63%
- 5-year rolling return: 18.35%
The ITI Small Cap Fund edges out slightly in the 3-year rolling return, but Invesco leads in the 1-year and 5-year metrics, indicating a more consistent performance over different time frames.
Capital Protection During Market Crashes
Both funds have experienced drawdowns, but their ability to protect capital differs:
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Invesco India Smallcap Fund:
- Max drawdown (1-year): -10.52%
- Max drawdown (3-year): -23.41%
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ITI Small Cap Fund:
- Max drawdown (1-year): -11.47%
- Max drawdown (3-year): -24.17%
Invesco India Smallcap Fund has demonstrated slightly better capital protection during market downturns, with lower drawdowns compared to ITI Small Cap Fund.
Risk-Adjusted Performance
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Sharpe Ratio:
- Invesco: 0.9988
- ITI: 1.0976
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Sortino Ratio:
- Invesco: 1.2348
- ITI: 1.3803
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Alpha:
- Invesco: 6.1558
- ITI: 7.7979
The ITI Small Cap Fund shows superior risk-adjusted performance with higher Sharpe and Sortino ratios, indicating better returns per unit of risk and downside protection. Additionally, ITI's higher alpha suggests it has outperformed its benchmark more effectively than Invesco.
Portfolio Overlap & Sector Bets
Both funds have a portfolio overlap of 22.59%, sharing investments in companies like Karur Vysya Bank Ltd. and BSE Ltd. However, their sector allocations differ significantly:
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Invesco India Smallcap Fund:
- Services: 21.48%
- Financial: 21%
- Healthcare: 20.14%
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ITI Small Cap Fund:
- Financial: 18.42%
- Services: 14.13%
- Capital Goods: 13.86%
Invesco's heavy allocation to services and healthcare sectors may contribute to its consistent returns, while ITI's balanced approach across financials, services, and capital goods provides a diversified exposure that has aided its risk-adjusted performance.
The Final Verdict: Which Should You Buy?
For investors seeking a fund with consistent rolling returns and slightly better capital protection during downturns, the Invesco India Smallcap Fund is a suitable choice. Its sector bets on services and healthcare have provided stability and growth.
Conversely, the ITI Small Cap Fund is ideal for aggressive investors who prioritize risk-adjusted returns and alpha generation. Its higher Sharpe and Sortino ratios, along with a more diversified sector allocation, make it a compelling option for those looking to maximize returns per unit of risk.
Ultimately, your choice should align with your investment goals, risk tolerance, and market outlook. Whether you are a conservative investor seeking stability or an aggressive investor chasing high returns, both funds offer unique advantages in the small-cap space.