We like this fund for its style purity to stick to the dividend yield mandate that provides stability to its portfolio, which has helped in maintaining the performance when markets fall.
This fund invests in stocks with high dividend yield across market capitalisation. Such picks being in companies with dividend yield higher than 0.5 per cent at the time of investing. "Free cash flow generation is a key criteria in addition to strong growth when investing," says Shreyash Devalkar, Fund Manager, BNP Paribas. He further adds that besides dividend yield, the investment filter also takes into account the company’s ability to maintain growth.
Devalkar follows a value-based bottom-up investment approach when selecting funds across market capitalisation. The portfolio is well-diversified with 46 stocks compared to 20 stocks earlier and over 90 per cent (average) equity allocation, with cash holding touching 20 per cent in 2008.
This fund started on a disappointing note, being the worst performer in 2006, which also resulted in investors exiting this fund; turning its assets to a fraction of what it had started with. The turnaround happened in 2008, which also coincided with the then fund manager sticking to this fund for over three years. The fund’s performance has improved since then, matching the category average or beating it, which has also pushed the fund into first or second quartile for the past four years.
There are investments in several stocks that remain in this fund’s portfolio for long periods such as ONGC, HPCL, Castrol India, SBI, Indian Oil, Deepak Fertilisers, HCL and BPCL, which strictly follow the fund’s mandate to invest in stocks with dividend yield in excess of 0.5 per cent. Increase in exposure to the FMCG sector and reduction in the exposure to the financial sector in which it was overweight has also aided the performance.
It is a good choice for conservative investors with its capability to limit the fall compared to peers. In 2008, it lost 48.16 per cent compared to 54.79 per cent loss by the category. This trait was demonstrated again in 2011, when the fund lost 17 per cent compared to the 24.5 per cent loss by the category. The dividend yield focus provides this fund the necessary cushion when the markets fall, making it a good option for bad times.