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Long-term Winner

Birla Sun Life Midcap could give ample rewards to those who hang in there for the long-term

This mid-cap fund sticks to its objective of avoiding concentrated and aggressive bets. In September 2007, the fund had up to 65 stocks in its portfolio, which has currently been pared down to 42. The allocation to any stock is not higher than 5 per cent, while the top three sectors account for just 33 per cent.

Having said that, the fund manager does churn the portfolio frequently. Stocks like Thermax, Marico, Voltas and Bharat Electronics have made an appearance in the portfolio for over 43 months, but have not been consistently around. The fund manager has been in and out of these stocks numerous times. The fund manager also goes for stocks he believes in, despite them being not too popular. For instance, Solar Explosives and Monnet Ispat, which are amongst the top holdings, are held by only four and eight other funds, respectively. Both turned out to be excellent buys. The fund has also taken fruitful short-term opportunistic bets in companies like NDTV and Cummins India.

The fund impresses during a rising market and disappoints when it plummets. But over the long run it compensates investors for the risk and outperforms the category average. In the downswing (January 8, 2008 - July 15, 2008), the fund trailed its category and most of its peers with a negative return of nearly 46 per cent, compared to the category average of -42 per cent.

The fund had increased its exposure to banking stocks from around 7 per cent (December 2007) to 15 per cent (February 2008). This sector was amongst the worst hit in the recent turmoil with the BSE Bankex delivering -32 per cent during the first quarter of 2008. Off late, the fund has reduced its exposure to banking stocks to around 5 per cent (July 2008) and increased its consumer non-durable allocation from around 5 per cent (April 2008) to 12 per cent.

While the fund’s stated objective says that it will avoid cash calls, that has certainly not been the case. In December 2007, it had a cash allocation of 21.25 per cent, which drastically fell over the next few months to shoot up to 16.54 per cent in April 2008 and currently stands at 7.34 per cent (July 2008). The debt allocation too is pretty high at 12.51 per cent.

With a diversified portfolio, this fund has managed to beat the category average over the years. But investors must not fret during market downturns and stay in for the long haul.