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Ride Cautiously

It's there but barely still. The Sundaram Capex Opportunities fund has had a good performance record but its stock allocation makes it vulnerable. As the headline suggests - ride cautiously

Though it joined the infrastructure party only in September 2005, Sundaram Capex Opportunities has shown promise. With annualised returns of 56 per cent, it was one of the top five diversified equity funds last year with returns of over 70 per cent.

Despite a portfolio of around 60 stocks, the fund manager refrains from frequent churning. Patterns of continuity are apparent with as many as 17 stocks entrenched in the portfolio since launch, and most of them among the major holdings.

But this should not be interpreted as a sign of safety. The portfolio of 60 stocks appears deceptively diversified. The fund remains essentially a concentrated offering with the top three holdings averaging at 23 per cent in the last 12 months while a long tail of stocks have a negligible exposure of under 1 per cent.

This puts tremendous pressure on the top holdings to perform. While the fund has been lucky with most of them, it has not managed to completely stay out of trouble. It erred with its entry/exit timing in stocks like Avaya Global Connect, HEG, Pratibha Industries, Universal Cables and Valecha Engineering.

Though the investment mandate is focused on the infrastructure segment, the portfolio has been broadened to include metal and energy stocks, in addition to the obvious capital goods and construction picks.

Despite the impressive performance, this top-heavy, thematic fund should not form the core of your holdings. Invest a limited portion of your portfolio in such a fund if you want to ride the infrastructure wave.