Though this fund hit a rough patch in 2008, we are not ready to give up on it. From topping the charts in 1999, it hit rock bottom in the next three years, to emerge from the ashes in 2003. Going by its 5-year annualised return of 26 per cent (June 30, 2009), it still has a lot going for it.
Despite fund manager Ritesh Sheth taming down the aggression ever since he took over in July 2007, the fund still has the mark of a risk taker. He churns his equity portfolio very frequently and there have been instances where the large-cap exposure has been around 50 per cent with the rest in smaller stocks. “I would not say that we play it safe, but we manage our equity in a well-diversified form without taking too much of risk. We take sectoral calls and balance it between large and smaller stocks,” he says.
A typical characteristic of this fund is that it falls harder during market downturns. That would explain its fall in 2008 by 44.66 per cent (category average: -41%). More recently, it shed 46.14 per cent between January 8, 2008 and March 9, 2009 (category average: -42.7%). The same trend is witnessed if we look at the previous quarters like the second quarter of 2006 and the first quarter of 2007.
Sheth maintains a broad portfolio that has averaged at 47 stocks, where no single stock allocation has crossed 5 per cent with the exception of Reliance Industries. The allocation to top five holdings too has remained below the category average.
Despite a mandate allowing it to go headlong into equity, the fund has never done so. It has limited its highest exposure to around 79 per cent, which is quite high considering that it is a balanced fund. In December 2007, the equity allocation stood at 75.10 per cent. In the recent bull rally too, it stood at 76 per cent (June 2009). Of course, the higher equity allocation helped it reap great returns in the recent bull rally (March 9, 2009-June 30, 2009) when the fund gained 58.24 per cent (category average: 49%). The lowest the equity allocation has touched is 64 per cent, even during the tumultuous 2008.
On the debt side, the fund maintains a high quality portfolio with a preference for Certificates of Deposit (CD), Commercial Paper (CP) and non-convertible debentures. “That's because the debt portion of the portfolio is usually maintained on shorter duration to generate regular income, and thus held to maturity. But, often during periods of volatile or higher yields, we do increase the duration - by investing mainly in G-Secs - and trade for profits,” says Sheth.