Don't overlook this fund simply because of its tiny size - Rs 115.47 crore (May 31, 2009). With a 3-year annualised return of 15.36 per cent (as on May 31, 2009), the fund is the third-best performer in its category of 13 and has outshone the category average by 4.33 per cent.
Granted, the fund's start was lousy with a return of 34.16 per cent in 2006 (category average: 54.20%). Blame it on the huge exposure to debt and cash. But in 2007, the fund compensated its investors well with a return of 90.94 per cent (category average: 82.83%). It successfully rode on the rally in Construction, Engineering, Energy and Diversified sector stocks. It allocated around 70.50 per cent of its portfolio to these sectors while the category allocated an average of around 54 per cent.
But as markets tanked in 2008, the fund lowered its exposure to the Construction sector from 18.18 per cent (December 2007) to around 7.26 per cent (May 2008) and to the Engineering sector from 15.53 per cent (December 2007) to 9.32 per cent (July 2008). This did not cushion the fall dramatically and the fund fell by almost 59 per cent (category average: -60%) that year.
Despite the agility that a small fund offers, this one opts for a large-cap bent, refrains from frequent churning and tilts towards a buy-and-hold approach. Some of stocks that have been held almost since inception are Larsen & Toubro, Tata Power, BHEL, McNally Bharat Engineering and Reliance Industries.
Fund manager Anand Shah who took over the fund in April 2008, has one philosophy - to buy stocks which have a secular growth story. “We focus on good companies, not on the market. We focus on long-term growth opportunities in India, not on the market direction,” is how he puts it.
While this is touted by a lot of fund managers, in all fairness, Shah does put his money where his mouth is. In December 2008, when the average equity exposure of funds to this asset class was 72.72 per cent, this fund had it at 83 per cent and it rose to 88 per cent over the next two months. By March 2009, the average was 70 per cent but it was at 90 per cent for Canara Robeco Infrastructure. By May 2009, the fund was fully invested at 96 per cent.
Naturally, this put him in an enviable position to benefit from the latest market rally (March 9 - May 31, 2009). The fund returned 91.56 per cent, an outperformance of the infrastructure fund's category average by a margin of around 10 per cent. Stocks like L&T, BHEL, Jindal Steel & Power, Tata Power, Reliance Infrastructure and Gujarat State Petronet saw a decrease in holdings between April and May. The reason being profit-booking amidst sharp appreciation in prices. “Even if we are bullish on a sector or stock, if there is a significant appreciation in price which we do not feel is justified, we will book profits,” he says.
Though the fund's mandate is very broad. the sectors excluded are FMCG, Pharma and Infotech. Even banking financial services are included, but “not those whose focus area is the retail business. Those that are strong players in the infrastructure sector and lend to infrastructure players are the ones we look at,” says Shah.
Right now the fund is betting heavily on Energy with a 30 per cent allocation (category average: 17.77%) and Telecom at 16 per cent (category average: 3.68%). Exposure to Metals has stayed constant over the past five months as the fund manager is negative on the sector and does not see a revival there in the near future.
This fund maintains a compact portfolio. Though the number of stocks has ranged from 29 to 49, by and large Shah stick to a number of around 35 stocks.