We like this fund for its mediocrity. It won't deviate much from its category average but during the market downturn it won't fall like a pack of cards either. Its downside protection capabilities distinguish it from its peers. Since 2003, in 10 of the total 11 quarters in which its category has been in the red, the fund has either curtailed its fall to a lower level or close to category average. In 2008, the fund shed less than the category average without resorting to aggressive cash calls. This year (September 30), when the category on an average lost 16.77 per cent, the fund shed just 10.05 per cent.
Radhakrishnan stays away from the momentum play and invests in stocks that will perform well over the market cycles. This has helped the fund protect its investors better during market downturns but has also resulted in a subdued performance during market rallies.
In 2007, Radhakrishnan stayed away from Power and entered Metals only in October. That year, BSE Power and BSE Metal delivered 122 and 121 per cent, respectively. “Stringent screening on various quantitative and qualitative parameters led us to limit exposure to momentum based stocks/ sectors - those characterized by high volatility, valuation and governance risks. We largely stayed away from Metals, Power and Real Estate despite the momentum building up in many stocks in these sectors.” Naturally this impacted its performance in 2007.
The year 2009 also was a dent in this fund's performance history. It underperformed its category by a margin of around 7 per cent and the benchmark by 15 per cent. “The portfolio was focused on stable stocks and low on cyclicals at that time. The rally in 2009 favoured cyclical stocks such as Materials and Real Estate that had witnessed sharp declines in 2008,” explains Radhakrishnan.
The fund predominantly invests in large-caps and sports a very diversified portfolio of around 50 stocks, with the top 10 holdings accounting for 40 per cent of the portfolio.
The fund does hold majority of its portfolio for the long term though there have been intermittent investments in stocks like Hero Honda, TCS, Bosch and Asian Paints. “We adopt a buy-and-hold strategy in line with our medium- to long-term views on a company,” says Radhakrishnan. “Any short term trades made are also in line with the overall portfolio strategy, and are mainly driven by changes in market conditions/relative valuations”.
Over the 15 years ended September 30, 2011, with an annualised return of 26 per cent, it is the best performer among 11 equity funds in its category.