The oldest and largest banking sector fund, it has not disappointed investors. Over the past five years, it has delivered an annual return of 42 per cent. Historically too, this fund has been less volatile than its peers or its underlying index.
Despite being a good performer, the fund took second place to JM Financial in 2007. In the December 2007 quarter, Reliance Banking delivered 19.43 per cent as against 28.52 per cent of JM Financial. But in the immediate proceeding quarter (March 2008), Reliance Banking fell by just 22.26 per cent as against JM Financial's fall of 33.36 per cent.
The reason was two-fold. Reliance Banking stayed away from high PE stocks - Axis Bank, HDFC Bank, Yes Bank, Cholamandalam DBS Finance and Srei Infrastructure. As a result it lagged in 2007 but fell much less when the market tanked.
Reliance Banking's high cash component also proved to be a buffer when the market fell. Like all the sector funds from Reliance AMC, this one too has the leeway to go fully into cash should the need arise. While it has not exercised that option, it does have the tendency to hold larger cash positions than the competition. Its cash component had consistently increased from 14.52 per cent (November 2007) to 32 per cent (February 2008). Since January 2008, it has averaged at around 25 per cent.
In March 2008, when the prices fell and valuations looked to be more reasonable, the fund manager picked up Axis Bank and Kotak Mahindra Bank which he avoided earlier because they were too expensive. What's interesting about this fund is its penchant for broking stocks - India Infoline, Indiabulls Financial Services, IL&FS Investsmart and Motilal Oswal Financial Services. But financial institutions like IDFC and IFCI are not courted.
What we like about this fund is its consistency. The fund manager's strategy may not deliver headline grabbing returns but it has led to a solid record over the long haul.