Conservative Stance

During a tumultuous 2000 which was the first year of this fund’s existence, it made its mark on the returns tables. When the entire category fell by (-)23.74 per cent in 2000, this fund delivered 2.11 per cent. Huge cash allocations did the trick.

During the bearish phases of 2001 and 2002, it fell less than the category average. In 2008, it once again managed to protect the downside and in the third quarter actually delivered 0.23 per cent, when the category average was -5.39 per cent. The cash allocation was not too aggressive and averaged at just 6 per cent during this quarter while the large-cap allocation averaged at 76 per cent. While both these factors helped to some extent, it was the sector allocations that played the important role. It maintained a higher than average allocation to financials and consumer durables, a lower allocation to energy and exited from metals altogether.

The fund manager does not chase top performing sectors if he does not believe in them. But this could also cause him to miss out on rallies. The rally in engineering in 2003 is a case in point when the BSE CG returned 167.81 per cent. Ditto in 2006 during the rally in construction stocks. In 2007, that was the case with metals when BSE Metals delivered 121.47 per cent while he held a miniscule exposure to the sector. What’s worse was that he entered into metals in 2008 in a contrarian move and added stocks like SAIL, JSW, Sesa Goa and Tata Steel. BSE Metals returned (-)73 per cent last year.

But despite a few misses, the fund has done well for itself. Its all-cap strategy has held it in good stead and over the past five years has delivered an annualized return of 14.63 per cent (December 31, 2008).

While the top 10 holdings account for almost half the portfolio, the risk is mitigated to some extent by a large-cap tilt. The fund manager also takes small exposures in a large number of stocks with many having an exposure of 1 per cent or less.

Though it has the unique ability to always protect the downside, it is not the most exciting offering out there. During bull runs, it has been a middle of the road performer but over the long term it beats the category average. Basically, a safe and sound offering.