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Compelling Pick

A top quartile performer for 5 years in a row, DSPBR Top 100 Equity has been a consistent performer…

Though it managed a top quartile performance in 2009, it failed to beat its benchmark - BSE 100. 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 himself admitted 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. Shah’s logic was not to blindly chase returns but focus on risk. Since it’s difficult to distinguish between real and speculative demand, he preferred staying away.

Its performance in 2010 was nothing to write home about - slightly above the benchmark and below the category average. Since then, it has bounced back. This year the fund has been able to curtail its fall to a lower level than its peers and benchmark. The fund has lost 4.46 per cent this year (June 30, 2011) while the loss of the category and benchmark is 7.49 per cent and 8.16 per cent, respectively.

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 37 stocks. Currently, 90 per cent of its equity portfolio is invested in BSE 100 stocks with the lowest market capitalised company (August 2010) being Crompton Greaves (market cap of Rs 16,627 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. What Shah attempts to do with this actively managed portfolio is to ensure that the core stays intact and on the margin take calls on fund flows or news that will lead to a change in valuation. His logic being that 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.
With an annualised 5-year return of 18 per cent (July 31, 2011), it makes for a compelling core holding.