The fund’s philosophy revolves around building a portfolio of emerging businesses that are scalable and form an integral part of the Indian economy. The portfolio allocation continuously seeks to capitalise on emerging themes and trends. The portfolio companies need to have an emerging business model, entrepreneurial vision and the capability to catapult to the next level of growth. They may not have scale at the time of investment but must have the potential to become market leaders.
During periods when the fund manager perceives market valuations to be dangerously stretched, lump-sum subscriptions are stopped and only investments made via systematic investment plans (SIPs) are accepted. This prevents short-term money flowing into the fund and reduces the pressure of investing at market peaks.
In its entire period of existence, the fund has outpaced its benchmark BSE 500 during the bull phases of the market and contained the downside during market corrections. During the 2008 meltdown, the fund quickly moved one-fourth of its assets into debt, thus checking the fall.
This fund invests in small and medium size businesses with good long term potential, which are available at cheap valuations. Although the portfolio sports a mid-cap bias, the fund picks stocks that are leaders in their respective sectors and have attractive valuations. Since the fund manager tries to position the fund ahead of the chain, he does not shirk from contrarian stands or bold sector bets.
There is no arguing with the numbers. The fund earned a return of 32 per cent in 2010 with a 5-year annualised return of 24 per cent (as on Jan 31, 2011). But with the focus on small companies, strong top sector bets and a fairly tight portfolio (individual stock bets do not cross 7%), there is an inherent strong risk taken to deliver that performance.
• FMCG, Services and Chemicals are the top 3 sectors.
• The fund has been overweight on Consumer Non-durables and Transportation.
• The fund has a very compact portfolio comprising around 25 stocks.
• On an average 60 per cent of the portfolio is in mid caps and 30 per cent in small caps.
• The top 10 stocks account for over 40 per cent of the assets.
• The fund holds a few offbeat stocks such as Page Industries, Solvent and Gokul Refoils & Solvent.