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Focus on Diversification

This fund's long-term track record of beating category averages in good times and bad times deserves a great deal of respect. A well-executed disciplined approach makes it a solid core holding.

Fund manager Chandresh Nigam may have performed the miracle of surviving the tech wreck unscathed, but the oil PSU disinvestment disaster has severly dented its short-term ranking. But Nigam is sticking to his guns — just like the government of India, he too has no plans to disinvest the oil PSUs. His take is that Hindustan Petroleum and Bharat Petroleum owed their premier place in this fund's portfolio — around 7.5 per cent for each — to the industry's continuing deregulation and high-dividend payouts, and not the disinvestment bonanza that once looked so real and possible. At current valuations, he sees little downside to holding on to both these navratnas.

Even if one does not quite agree with that logic, this fund's long-term track record of beating category averages in good times and bad times deserves a great deal of respect. Zurich India Equity has always practiced what every fund should — diversification in the face of temptation. Zurich's commitment in the oil stocks did not go much beyond 20 per cent. Three years ago, similar prudence held it back during the tech boom.

When technology stocks were riding high, the fund's refusal to over-invest in the sector did give its investors some heartburn, as did its move to reduce exposure to the sector from November 2000, much before other funds. As subsequent events showed, this saved its investors from the severe losses that followed the crash.

In the volatile markets of the last five years, Zurich's cautious approach makes it stand out. While it may have appeared to be a laggard when the markets were hot, its basic strategy has stood the test of time. Historically, its performance swing has been less than its average peer's and it has always been among category toppers.

Its 5-year return of 23.43 per cent and 3-year return of 2.09 per cent beats the benchmark Sensex. The fund limits itself strictly to quality stocks; even in these times of recession-affected profits, its portfolio's average P/E is a reasonable 17.32.

The only problem on the fund's horizon seems to be one of plenty — during this year, the fund's asset base has swollen by almost four times. This rapid increase could lead to some problems of flexibility.