Fidelity Tax Advantage: Riding on Large Caps | Value Research A sturdy fund built with a large-cap and financial sector bias
Fund Focus

Fidelity Tax Advantage: Riding on Large Caps

A sturdy fund built with a large-cap and financial sector bias

This fund follows a go anywhere strategy with no market-cap, sector and style bias. However, on close analysis, there is a large-cap bias in the portfolio. The large-cap exposure has ranged from 57 to 70 per cent and has averaged 64 per cent, since the fund’s launch. And despite claims of no sector bias, there is preference to the financial services. The 20 per cent allocation to this sector since inception, stood at 27 per cent in September 2010. This has resulted in the fund being a stable performer with an average performance during market rallies and has managed to shield investors during market falls.

Justifying the higher exposure to financial services, Sandeep Kothari, equity fund manager, Fidelity Mutual Fund says, “Financial sector is a good proxy to the overall growth in the economy. But the sector does get impacted by the interest cycle, business cycle and the valuation cycles. Though I like the long-term fundamentals of the sector, we do increase or decrease our exposure to the sector depending on valuations and interest rate cycles.” The fund has largely stayed away from metals and construction, missing out on the 2007 and 2009 rally in these sectors. Kothari attributes the absence of metals to high valuations based on balance sheets of some of the larger player. “Construction is a working capital intensive business and understanding the cash flow cycle is essential and we tend to avoid companies with very high net working capital to sales in this sector,” he says.

Our View
With a large-cap bias, one would expect a tight portfolio of few stocks in this fund; however, the fund diversifies its portfolio with 62 to 91 stocks, and currently has 63 stocks. The fund largely follows a buy and hold strategy with seven stocks, Larsen & Toubro, Reliance Industries, BHEL, HDFC Bank, ICICI Bank, SBI and Infosys Technologies finding a place in the portfolio since inception. The large-cap tilt and higher allocation to the financial services sector makes the fund sturdy, but it also means that investors have to be content with an average performance during market rallies.

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