This portfolio tends to tilt towards smaller fare; large caps have touched a maximum 65 per cent here and have gone as low as 24 per cent. But Subramanian plays it safe by ensuring that the approach to mid and small caps is biased in favour of growth, quality of balance sheet and strength of underlying cash flow rather than a sheer undervaluation play.
That would explain why in 2008, despite not fleeing to the safety of large caps and cash, this fund was one of those that fell the least. To add to it, the portfolio was not hugely diversified but tightly packed with stocks (32 to 39). Out of the total 38 stocks, which appeared for six months or more in the fund’s portfolio in 2008, 16 experienced a fall lower than the Sensex. These 16 accounted for around half of the fund’s portfolio in 2008.
Unfortunately, the very growth strategy that helped the fund during the 2008 turmoil proved to be the chink in the armour the very next year. “The early part of the bounce back in 2009 was led by global cyclicals to which this fund had a comparatively lower exposure. Also value oriented strategies and companies with distressed balance sheets witnessed a much sharper rise in 2009 when the market went from pricing insolvency to pricing in survival,” explains Subramanian. He stayed away from Metals (allocation never exceeded 2%) but increased exposure to FMCG. BSE Metal delivered 234 per cent in 2009 while BSE FMCG delivered 40 per cent. But in 2011 as well, he stood vindicated in the market downturn.
Does this necessarily mean that the fund is a bear market star and a poor performer in market upturns? Not particularly. While its downside protection capabilities are good, during market rallies it delivers slightly higher than the category average. So its longer-term track record evens it out.
The fund’s base universe is the BSE200. To this, companies in the CNX Midcap and handpicked from the BSE Small Cap and BSE PSU indices are added. This universe is reviewed every quarter. Subramanian has consciously increased the number of stocks in the portfolio and the target number of holdings is now in the region of 50. While there are the occasional deviations of aggressive bets (HPCL accounted for 9 per cent in one month), allocation to a single stock is normally restricted to 6 per cent. Since momentum and cyclical plays are avoided, one will have to wait for the bets to play out. And eventually, they will. But you can be sure that the fund manager will do his best to ensure a quality portfolio.
This article was originally published on February 07, 2012.
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