Another fire cracker from the infrastructure theme, Tata Infrastructure returned an awesome 60.32 per cent through 2006 to emerge as the third best performing diversified equity fund.
The fund achieved this essentially on the back of a large-cap growth-oriented focus, with some help from the mid caps. To some extent one can attribute this stellar performance to the sector exposure that most infrastructure funds maintain. But the real clincher had been the fund manager's ability to spot sector trends which has truly augmented the fund's returns.
For instance, before the markets tanked in May 2006, the fund manager had cut back his exposure to financial services. The move was profitable, because the sector was amongst the biggest losers in the bear phase that ensued. By February 2007 the fund manager re-entered the sector, timing the entry rather well, because through the June 2007 quarter (April-June) this sector delivered phenomenal returns. Similarly, the fund's timing in the metal sector was flawless. These two significant calls have translated into a 23.3 per cent return in the June 2007 quarter compared to the category's 16.88 per cent return.
But the strategy has its share of pitfalls too. March 2007 quarter was disastrous, for the fund lost 8.26 per cent compared to the category's loss of 5.93 per cent. The main reason for this slip up was the 24 per cent exposure to the construction sector. In fact the March 2007 quarter was dismal for all infrastructure funds that were overweight on the construction sector.
The fund also shows a tendency to slip faster in a falling market. In a nutshell, the fund is definitely not for nervy investors.
This article was originally published on August 30, 2007.
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