Consistency of returns is the virtue of this fund. After outperforming the benchmark for five years, this one failed to do so last year. The prime reason was the time taken to hop onto the rally which began in March 2009. The sudden turn in the stock market caught the fund manager by surprise whose portfolio was positioned for a bear market. He admits to losing 24 per cent relative to the benchmark in just three months. Another reason for the lacklustre performance was the low exposure to Metals. BSE Metals was the best performing index in 2009 delivering a scorching 234 per cent. “Metal stocks rallied in the first leg of the rally,” says fund manager Apoorva Shah. “We took a call not to blindly chase returns but focus on risk. Hence, we have decided not to invest heavily in Metals since it is difficult to pinpoint the real demand as speculative demand plays a prominent role too.”
The fund is mandated to invest in the top 100 companies by way of market cap. The fund manager does so with a liquid portfolio of around 40 stocks. Currently, 81 per cent of its equity portfolio is invested in BSE 100 stocks with the lowest market capitalised company (August 2010) being Colgate-Palmolive (market cap of Rs 11,215 crore).
A look at the portfolio gives the impression that the fund manager follows a target return based strategy where he picks an undervalued stock only to exit it as soon as the target price is achieved. With no qualms on re-entering the same stock the very next month if he sees an opportunity again. As a result we see a lot of churning. However, Shah views it differently. “We keep our eyes on inflection points. If it's a range bound market, we see what range we should look at. It is an actively managed portfolio. While the core portfolio remains intact, on the margin we take a call on fund flows or news that will lead to a change in valuation,” he says. “In such a well researched space, one does not have to buy and hold for long since price targets are achieved rapidly.”
Derivatives are used when the stock is quoting cheaper than in the cash segment. The fund manager also buys the Nifty to reduce cash levels till he finds a stock to deploy the cash in.
This one is the best performer in this space with an annualised 5-year return of 25 per cent (August 31, 2010). A compelling core holding for any portfolio
This article was originally published on November 04, 2010.
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