The mandate demands an investment of at least 65 per cent of the portfolio in equity shares that have a high dividend yield at the time of investment. A look at the track record makes one wonder whether the fund manager follows this principle diligently. Its impressive performance in 2007 was because Kulkarni hopped on to the Energy and Metals bandwagon by re-entering Tata Power and adding RIL, SAIL and Tata Steel. That year, the BSE Power, BSE Oil & Gas, and BSE Metals all delivered handsomely. But Kulkarni says that she has never deviated from the mandate. “Almost always 70 per cent of the portfolio will be in stocks qualifying as high dividend yield,” she says. “Even in the peak of the bull run in January 2008 we were within these limits and never deviated from our mandate.”
The objective is best suited to those who want decent returns with good downside protection, both of which the fund has given. Its fall in 2008 was less than that of the Sensex as well as the category averages of the multi cap and dividend yield categories. Of course, allocation to debt and cash also contributed to cushioning the fall. Come 2009 and the fund faltered because Kulkarni began to seriously up the equity allocation only from June 2009 onwards. “I was investing but between March and May the rally was substantial and there was an event risk ahead with the Elections, the results of which caught us by surprise. In hindsight, I can say that we were slow in deploying cash and our cash holding was a drag on portfolio performance for a while,” she says.
But what has always worked for this fund is smart bottom up stock picking and sector allocation. And by doing that Kulkarni managed to marginally outperform the Sensex and the other two categories in 2009 as well. Her overweight calls in IT, Auto and Fertilisers helped. She also gives credit to “some good stock picking in IT, Consumer, Engineering and Metal sectors”.
The intrinsic nature of this portfolio is to pick up good dividend yield stocks which bring support on the downside. Besides scouting for companies which have sustainable cash flows, Kulkarni also looks at capital appreciation potential as the next filter. Using a multi cap strategy she has put to rest the notion that dividend yield funds can only impress during market downturns.