This fund is definitely not for the faint hearted. Its tumultuous ride ensures that it gets hit harder during the market falls. But its ability to compensate well during the market run ups helps it stand out in the long run.
The fund has delivered an annualised return of 11.92 per cent over the five-year period ended August 30, 2011 (category average: 8.79%). This despite the fact that the fund is currently amongst the worst hit in its category with a return of -17.57 per cent (category average: -15.71%). “We have been hurt by our positions in Capital Goods and Pharmaceuticals. Also Energy as a category has not done well. We have gained from our exposure to Telecom and Consumer Goods,” says Rajat Jain, CIO.
In 2008, the fund was thrashed by its peers and underperformed in every quarter. Finally it ended the year with -59 per cent, against the category average of -50.66 per cent and its benchmark’s loss of 55.28 per cent. While the exposure to Financial Services in the first half of the year contributed to the poor performance, the fund manager’s decision to refrain from taking on cash bets also played a role. Despite a mandate permitting him to go 30 per cent in cash and cash equivalents, the highest he touched was 7.79 per cent (December 2008). But when the market began to suddenly rally in March 2009, he was almost fully invested which gave him a fabulous lead. In 2009, its return of 110 per cent put it on top of the charts. The fund beat the category average by a margin of almost 30 per cent. Jain also attributes the success to his “stock calls in IT, Financials and Pharmaceuticals”. In 2010, it remained a top quartile performer, thanks to itsexposure to Pharma and FMCG.
The fund is benchmarked against the BSE 100 and invests in stocks that fall within the market cap range of this index. Till 2007, the fund was classified as ‘Equity: Large Cap’ with an average allocation of 83 per cent to large-cap stocks. Currently, the fund holds around three fourth of its portfolio in large-cap stocks.
The fund has a fairly diversified portfolio of around 50 stocks, which is an increase from 26 in June 2007. Barring Reliance Industries none of the stocks have exceeded an allocation of 8 per cent of the fund’s
Among sectors, Financial Services and Energy have been the all-time favourites. Currently, the exposure to the two sectors is 21.62 per cent and 16.50 per cent, respectively.
The fund has proved itself time and again during market rallies but only those who can stomach the associated downside risk should consider it.