DSP Merrill Lynch (DSPML) Opportunities Fund has got the returns, but not in a manner you would have expected. Meant to take concentrated sector bets, this fund, however, has closely resembled any successful diversified equity fund.
Born in mid-2000, DSPML Opportunities had 50 per cent of its portfolio parked in IT stocks. Maintaining its overweight position in IT stocks, the fund also took exposure to non-IT stocks such as ITC, which helped it beat the benchmark. So, while the S&P CNX Nifty was down 21 per cent, the fund lost only 15 per cent in 2000.
In the run-up to Budget 2001 the fund matched its benchmark. However, it fumbled in the subsequent months. From post-Budget till the market hit a bottom after 9/11, the fund lost heavily due to its high tech exposure. When markets rallied later in the year, the fund gained 57 per cent, beating both the category and the benchmark. And the credit for this went to its PSU holdings such as BPCL, HPCL, Bharat Electronics and BHEL. The fund's IT holdings also had a role to play, though to a limited extent. In spite of the gains, the loss that DSPML Opportunities incurred early in the year was too much, resulting in the fund underperforming its benchmark and moving into the third quartile of returns.
The presence of PSU stocks kept the fund's NAV in a healthy shape till Budget 2002. When stock markets fell after the Budget, it was PSU stocks that kept the fund afloat (well relatively!). As markets moved upwards in late 2002, select holdings such as SBI and TISCO helped the fund turn in decent returns. With this winning performance across different cycles of 2002, the fund was in the top quartile.
The year 2003 so far has been good for DSPML Opportunities. An underweight position in IT before Infosys tanked, and presence of winning stocks such as ITC, Ranbaxy, Grasim and L&T helped it do well. Overweight position in bank stocks (since early 2003) too has boosted the fund's returns.
DSPML Opportunities resembles a diversified equity fund and the fund management says that this diversification is a conscious decision as the rally in the market has been broad-based. The fund, however, will move into specific sectors once it expects significant price appreciation.
This article was originally published on July 28, 2003.
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