These 18 schemes delivered 75-110 per cent returns in the last 12 months

It has been a dream 12 months for mutual funds investing in government companies (PSUs), infrastructure and international stocks.

Add factor funds to the mix and you'll find 18 funds that have delivered a whopping 75-110 per cent returns in the last 12 months. The Central Public Sector Enterprises Exchange Traded Fund (CPSE ETF) heads the list, gunning nearly 110 per cent returns. In other words, had you invested in this ETF 12 months back, your money would have more than doubled!

So, without wasting much of your time, let's look at the 18 money makers and identify the ingredients that have made them too hot to handle in the last 12 months.

PSU funds lead the pack

Stocks of public sector undertakings (PSU) have been on a roll since 2021, but 2023 was especially impressive. The PSU index zoomed 55.3 per cent.

Such a sharp rally has propelled several mutual funds investing in them to deliver blockbuster returns. Aditya Birla Sun Life PSU Equity Fund and SBI PSU Fund are the standout active funds, delivering 97.86 per cent and 92.44 per cent, respectively, in the last one year. The returns are as of March 4, 2024.

Passive PSU funds - such as CPSE ETF, Kotak Nifty PSU Bank ETF and Bharat 22 ETF, among others - are also a part of the money makers list.

Reason for outperformance
Some of the top five holdings in the funds, such as Housing & Urban Development Corporation, NTPC and Coal India, surged between 106 and 333 per cent in the last year. In general, PSU stocks have rallied in the last three years due to several factors, including increased government capex spending, attractive valuations and an earnings turnaround.

Infrastructure funds

Infrastructure is a cyclical sector that does well whenever the economy is booming. It's one of the key drivers of economic growth and productivity.

In the last few years, the government has taken various measures to boost the infrastructure sector, which has led to the sector doing well.

As a result, pure infrastructure funds such as the Bandhan Infrastructure Fund, Quant Infrastructure Fund and HDFC Infrastructure Fund gave returns of 75 to 80 per cent.

Nippon India Power and Infra Fund, which partly focuses on the energy sector, also gave a handsome return of 78.5 per cent last year.

FANG stocks in demand

Mutual funds investing in international stocks have greatly benefited from the 'Magnificent Seven's' greater focus on AI (Artificial Intelligence). (Apple, Alphabet, Amazon, Microsoft, Meta Platforms, Nvidia, and Tesla are part of the 'Magnificent Seven'.)

Since the Magnificent Seven are part of the NYSE FANG 10 stock index, Mirae Asset NYSE FANG+ETF and its Fund of Fund have given returns of 80.35 per cent and 90.38 per cent, respectively.

Reason for outperformance
Nvidia has been one of the biggest contributors, with returns of 256 per cent in the last year. Other stocks, such as Meta (Facebook) and Broadcom, also appreciated 168 per cent and 121 per cent, respectively.

Factor indices in the spotlight

Factor funds are mutual funds that pick companies based on various parameters such as value, quality and momentum.

In the last year, the performance of these funds has come to the fore. For instance, the ETF and index fund of Motilal Oswal S&P BSE Enhanced Value gave returns of 95.04 per cent and 93.5 per cent, respectively. The Enhanced Value Index identifies 30 companies in the S&P BSE Large and Mid-cap space with the highest valuations based on book value-to-price, earnings-to-price, and sales-to-price.
Kotak Nifty Alpha 50 ETF also churned out 78.02 per cent returns. The Nifty Alpha 50 Index picks 50 companies listed on the NSE with the highest potential to generate alpha (higher returns).

Should you invest in them?

• All the funds that have given outlandish returns are thematic or sectoral in nature. The problem with them is that they are highly cyclical and risky. They might do well at certain times and not so well during others.
• Sectors such as PSUs and infrastructure tend to perform better when the economy thrives. However, these two sectors have also seen long periods of flat or negative returns. For instance, the PSU sector largely struggled for six years (2015 to 2020).
• The funds investing in FANG stocks carry some element of risk as well. Since these funds have a concentrated portfolio of only 10 stocks, any economic issue in the US might thwart their rise.
• Factor funds are similarly cyclical. Predicting which factor (value, quality, momentum, among others) will do well is difficult.

Our take

Although these funds have produced an exceptional display, they can be avoided because of their high-risk nature.

But if you are still keen, we suggest you allocate not more than 10-15 per cent of your overall portfolio.

Also read: The fund that stirred a frenzy like no other in 1992