If you believe that all your eggs should not be in one basket then this is the fund for you. For Sun-daram Growth limits exposure to individual stocks to 5 per cent of the NAV. And when this exposure is exceeded the fund is quick to prune it.
The result of this diversification is that while Sundaram Growth may have rarely beaten its benchmark during bull phases, it has also rarely fallen more than the benchmark in bear phases. This fund has managed to convincingly outperform the BSE 200—its benchmark index—during the years 1998-2001. Only in 2002 did the fund marginally underperform the benchmark.
By middle of 1999, a fifth of Sundaram Growth's portfolio was parked in the FMCG sector. However, towards the end of the year, the fund hiked its IT exposure that helped it register gains from its top IT holdings such as SSI, Satyam and Infosys. In 2000, like other equity funds, Sundaram Growth shifted focus to IT, parking 30-40 per cent of its assets in the sector. A sharp, but short-lived, rally in early 2000 helped the fund gain nearly 9 per cent in the first quarter. By end-2000 though, luck had run out on the fund's IT holdings. Despite that Sundaram Growth managed to beat the index that year by losing less than the benchmark. It was its financial holdings—such as HDFC and ICICI Bank—which came to its rescue. The fund booked profits in both these stocks.
In 2001, with reduced IT exposure, Sundaram Growth's portfolio became much more diversified. Post-9/11, the fund was down 11 per cent in September 2001. Again, the culprit was IT holdings (14 per cent exposure prior to the attack). But in the last quarter of the year, Sundaram Growth's auto holdings and IT recovery helped the fund clock 20 per cent gains. In the pre-Budget rally of 2002, the fund's PSU exposure—in stocks like HPCL and Container Corporation—helped the fund gain nearly 50 per cent, which was similar to that of its benchmark. Last year the fund didn't really tinker much with its portfolio.
Overall, Sundaram Growth is among the least volatile funds. Its consistent performance thanks to large-caps makes it a right pick for cautious equity investors who want to avoid excessive volatility and preserve returns when markets are in a bear grip.
This article was originally published on June 16, 2003.
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