VR Logo

Helps Protect Downside

A diversified portfolio, allocation to large-caps & high cash levels enable Reliance Growth to protect the downside

This mid-cap fund stands out amongst its peers in terms of size (largest) and impressive performance. With a trailing return of 49 per cent over a period of five years (as on July 31, 2008), it’s the third best performer fund amongst all open-ended equity funds. The only blip was in 2006 when it did not make it to the top quartile numbers but nevertheless beat the category average.

But where this fund also does make a mark is in the way it protects the downside. When the market tanked (January 8, 2008 to July 15, 2008), despite a high mid-cap exposure, the fund’s decline was 3 per cent less than the 42 per cent average fall of diversified equity funds.

This can probably be attributed to the aggressive cash calls taken by the fund manager. In the four months leading up to July, the cash allocation has averaged at 25.28 per cent.

Besides cash calls, the fund manager maintains a diversified portfolio. In January 2008, except for metals, none of the sectors accounted for more than 10 per cent of the fund’s portfolio. Currently, the top three sectors of the fund account for just 23 per cent. Stocks with an exposure of less than 1 per cent account for nearly 21 per cent of the fund’s portfolio. The weighted average market capitalisation of the fund at around Rs 11,396 crore (July 2008) is relatively higher than that of other mid-cap funds. The reason being the significant exposure of around 42 per cent to large-cap stocks and investment in relatively larger mid-cap stocks.

With the rise in assets, the fund manger has refrained from taking short-term opportunistic bets that he used to in the past. While he does hold on to stocks for fairly long periods of time, he does frequently enter and exit a few stocks. For instance, the cash allocation rose from around 13 per cent (December 2007) to 20 per cent (February 2008) by selling off some of the large-cap holdings like Infosys Technologies, JSW Steel and State Bank of India only to re-enter them in March at cheaper prices causing the cash allocation to dip to 15.59 per cent.

Some of his favourite picks are Jindal Steel & Power, Reliance Industries, Crompton Greaves, Divi’s Laboratories and State Bank of India, all of which have appeared for more than 60 months in the fund’s portfolio. Out of these, the fund has entered and exited SBI a number of times.