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Changing Tack

The Sundaram Select Midcap fund has changed its strategies in the past year which will give the fund more stable earnings. But the changes have also resulted in a dip in the fund's performance

The fund is known for its astute stock picking. The earlier fund manager, Anoop Bhaskar, dabbled in construction companies (Gammon India, IVRCL Infrastructures, Hindustan Construction) when most investors would not touch them with a bargepole. Unitech entered the portfolio later (2005). That was also the year he bought Emami, which delivered impressively. Kohinoor Foods, Lakshmi Machine Works and Thermax were some other good picks.

Besides good stock picking, the timing could not have been better. Launched in July 2002, mid-caps started gaining momentum in 2003. The fund ended that year as the third-best equity fund with returns of 157.73 per cent. As the mid-caps slowed, this fund dipped slightly in performance only to shoot up to the second-best spot in 2006 with 60.77 per cent returns.

Naturally, huge investor interest followed taking the assets from Rs 500 crore (January 2006) to Rs 2,203 crore (May 2007). Recently, there has been a slight dip in assets to Rs 2,116.66 (September 2007). There were two much-talked about aspects of this fund, both of which are changing. It was noted for its extremely diversified portfolio. From around 60-odd stocks late 2004, it swelled to a 112-stock pack by April 2007. But the number of stocks has been diminishing and it touched 82 in September this year.

And, it often had the highest cash holdings amongst its peers; there were times when it touched 32 per cent of its portfolio. But in May 2007, it reduced it to 5 per cent and since then it has hovered around 3.26 per cent. The current move towards lesser stocks and a lowering of the cash holding should spell good news because it speaks of a more concentrated portfolio whose returns will not be diluted. But, the fund is facing some heat on the performance front.

This year, its quarterly returns have not beaten the category average and its year-to-date, one-month, three-month and one-year returns are lower too. Despite the current statistics, this one is a good bet in the mid-cap space.